How Does E-Invoicing Work? A Guide for Modern Businesses

Kate Saveleva26 May 20254 mins
How Does E-Invoicing Work? A Guide for Modern Businesses

In today’s digital-first economy, traditional paper-based invoicing is quickly becoming obsolete. Electronic invoicing or e-invoicing has emerged as a smarter, faster, and more compliant method of billing between businesses, governments, and suppliers.

But how does e-invoicing work, exactly? And why is it becoming mandatory in many countries?

In this blog, we will break down the core components, benefits, and real-world workflows of e-invoicing. We will also look at regulatory frameworks driving adoption and help you assess if your organization is ready to make the switch.

What Is E-Invoicing?

Electronic invoicing (e-invoicing) is the automated digital exchange of invoice data between a supplier and a buyer, often via an intermediary platform. Unlike PDF or scanned invoices sent via email, true e-invoices are structured data files (e.g., XML, UBL) that are generated, transmitted, received, and processed without human intervention.

Key Characteristics of E-Invoices:

  • Machine-readable format (not just digital images)
  • Automated transmission via secure channels (APIs, EDI, or government platforms)
  • Real-time validation against business and tax rules
  • Audit trail with timestamps, signatures, and legal evidence

Why Are Businesses Adopting E-Invoicing?

There are three primary drivers:

  1. Efficiency – E-invoicing reduces manual entry, processing time, and invoice errors.
  2. Cost Savings – Studies show savings of 60–80% per invoice compared to paper-based processes.
  3. Compliance – Governments in over 80 countries now mandate e-invoicing to reduce tax evasion and streamline VAT/GST collection.

How Does E-Invoicing Work? Step-by-Step

Understanding how e-invoicing works involves looking at the end-to-end process from invoice creation to archiving.

Step 1: Invoice Creation

The process starts in the supplier’s ERP, accounting, or billing system. The invoice is created digitally with all required fields, including:

  • Invoice number
  • Customer information
  • Line items and tax breakdowns
  • Payment terms
  • Unique identifiers (e.g., PEPPOL ID, GSTIN)

This invoice is exported in a structured format such as:

  • XML
  • UBL (Universal Business Language)
  • EDIFACT
  • JSON

The key here is that the invoice is not just a PDF—it’s machine-readable data that can be parsed by other systems.

Step 2: Validation and Formatting

Before submission, the invoice data is:

  • Validated for completeness and formatting (e.g., are tax fields correct?)
  • Mapped to meet the buyer’s system or regulatory schema
  • Digitally signed (in some jurisdictions) to guarantee authenticity

Step 3: Transmission

The invoice is then transmitted to the buyer via:

  • E-invoicing networks (e.g., PEPPOL, EESPA)
  • Government platforms (e.g., SDI in Italy, IRP in India)
  • EDI (Electronic Data Interchange)
  • API-based direct connections

In some countries, the government acts as a “clearance” point, validating and storing the invoice before forwarding it to the buyer.

Step 4: Buyer Processing

The buyer’s system automatically ingests the invoice data and:

  • Cross-checks it against purchase orders or contracts (3-way match)
  • Flags discrepancies for review
  • Prepares it for payment processing in AP systems

This step may also include automatic VAT posting and audit logging for compliance.

Step 5: Archiving and Compliance

Both the supplier and the buyer must store the invoice and its audit trail for a legally defined period (5–10 years in most countries). E-invoicing solutions usually offer secure digital archiving with:

  • Tamper-proof storage
  • Timestamped logs
  • Searchable access

Global E-Invoicing Mandates

Understanding how e-invoicing works also means knowing where it’s required by law. Here’s a snapshot of major regions:

CountryMandate StatusPlatform
ItalyMandatorySDI (Sistema di Interscambio)
IndiaMandatory for enterprises > ₹5 CrInvoice Registration Portal (IRP)
FranceMandatory by 2026Chorus Pro
MexicoMandatoryCFDI
Saudi ArabiaPhased rolloutZATCA
BrazilMandatorySEFAZ

These mandates usually follow either a clearance model (invoice approved before reaching the buyer) or a post-audit model (invoice archived and reported after the fact).

Benefits of E-Invoicing

1. Faster Payments

E-invoicing reduces delays in invoice delivery and processing, leading to quicker approvals and on-time payments.

2. Lower Error Rates

Eliminating manual data entry reduces the risk of:

  • Duplicate invoices
  • Incorrect amounts
  • Misrouted documents

3. Cost Efficiency

The cost to process a paper invoice can range from $10–$30. E-invoicing reduces this to $1–$3, according to the Billentis Report.

4. Compliance and Audit Readiness

Most e-invoicing platforms provide built-in tax logic, digital signatures, and time-stamped logs, helping you comply with local VAT/GST regulations.

5. Scalable Automation

With true e-invoicing, your AP/AR workflows become automation-ready, enabling better cash flow forecasting, working capital optimization, and real-time reporting.

Common Misconceptions

1. Isn’t sending a PDF via email the same as e-invoicing?
No. A PDF is not machine-readable and typically requires manual intervention. True e-invoicing involves structured data transmitted system-to-system.

2. Isn’t it just for big companies?
Not anymore. Many governments now require SMBs to comply with e-invoicing standards. Modern SaaS platforms offer affordable, scalable options for smaller firms.

3. It’s only for tax compliance.
Tax compliance is a key driver, but the business benefits, such as automation, speed, and data accuracy, are just as important.

How to Choose an E-Invoicing Solution

When evaluating e-invoicing software or platforms, consider the following:

CriteriaWhat to Look For
ComplianceSupports local tax mandates in your regions
IntegrationWorks with your ERP (SAP, NetSuite, Oracle)
ScalabilityHandles large volumes with low latency
SecurityData encryption, access controls, and backups
ReportingReal-time dashboards and audit logs
SupportMulti-lingual, regulatory updates, onboarding help

Is Your Business Ready?

Ask yourself:

  • Are you still relying on email or PDF invoices?
  • Do you operate in a region with upcoming e-invoicing mandates?
  • Are invoice errors causing payment delays or compliance issues?
  • Could automation unlock cost savings and better cash flow control?

If you answered yes to any of the above, it’s time to explore an e-invoicing solution.

Final Thoughts

E-invoicing is no longer a “nice-to-have” feature—it’s quickly becoming the standard for B2B and B2G transactions worldwide. By understanding how e-invoicing works and preparing your organization for digital transformation, you can stay compliant, cut costs, and operate more efficiently.

Ready to Embrace E-Invoicing?

At Kolleno, we offer a comprehensive e-invoicing solution designed to help enterprises:

  • Stay ahead of compliance mandates
  • Eliminate manual errors
  • Accelerate payment cycles

Book a demo today to see how we can streamline your billing and accounts receivable processes.

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