The benefits of e-invoicing and cloud accounting

Electronic invoicing (or e-invoicing), has gained prominence in recent years as more and more jurisdictions look to introduce legislation to oblige businesses to issue electronic invoices.

VAT reforms in the pipeline in the European Union will ultimately result in new measures existing in all 27 member states, with some already having statutory e-invoicing in place.

In the UK e-invoicing has been permitted for many years, however it’s only required with respect to certain supply contract scenarios when supplying the public sector, such as NHS Trusts.

Although there is currently no mandate in the UK for e-invoicing to apply to business-to-business transactions (B2B), many owner-managed businesses are starting to prepare and implement it, as it’s seen as an opportunity to harness efficiencies within the finance function of any organisation.

In an era of digital transformation, entrepreneurs are taking the opportunity to reimagine financial processes within their businesses. Rather than waiting for e-invoicing to become mandatory, many entrepreneurs see it as a game-changer for automating routine finance functions. By automating data exchange and streamlining communication between businesses, e-invoicing is creating efficiency gains, cost savings, and real-time accuracy.

But how can businesses harness this potential effectively? Enter cloud accounting – a powerful ally that integrates with e-invoicing solutions.

What is e-invoicing?

E-invoicing is the issuing, receiving and managing of invoices digitally. Unlike traditional paper invoicing, e-invoicing automates data exchanges between financial systems, eliminating manual intervention. Effectively, the entire invoice process happens within the accounting software itself.

Over 80 countries have introduced mandatory e-invoicing in some form, including Italy, India, Hungary and Mexico, and by 2030 it’s expected that the majority of countries worldwide will have followed suit.

However, maintaining compliance across a number of jurisdictions does remain complex due to the diverse range of rules and requirements. Entrepreneurs with plans to expand their operations internationally should ensure their organisations keep pace with the relevant measures within the jurisdictions in which they operate.

E-invoicing in the UK

UK businesses have the opportunity to issue e-invoices if they wish. HMRC’s guidance on e-invoicing has been in place for many years. The underlying message is that e-invoicing is permitted where “the authenticity of the origin, integrity of invoice data, and legibility can all be ensured, and your customer agrees to receive invoices electronically”.

Meeting this standard requires a business to adopt appropriate systems and controls, which cloud accounting has an important role in.

For an e-invoice to be compliant, the following must be included:

• A unique and sequential invoice number,
• Date of time of supply,
• Invoice date,
• Supplier’s name and address,
• Customer’s name and address,
• Supplier’s VAT number,
• Description of the goods or services,
• Unit price and quantity of goods or extent of services,
• VAT rate(s),
• Amount owed or paid excluding VAT,
• Total amount of VAT charged, and
• Any discounts applied.

These are already required for paper invoices, so shouldn’t result in much change to businesses.

Using cloud accounting in your business

Unlike traditional accounting software that is installed only on a business’ server, data stored in the cloud can be more easily shared with others and can automatically pull in information from other sources. Cloud accounting offers several other benefits on top of streamlining invoicing, including enhanced security of data, time savings and improved collaboration.

The biggest advantage, and perhaps considered the main purpose of cloud accounting, is the time it saves on daily processing tasks. By using software to send invoices electronically, the time it normally takes for an individual to input the invoice details at multiple points in the process can be eliminated. As most of the invoice process becomes automated, this will lead to quicker and more accurate processing of invoices and therefore a potential to receive faster payment from customers. Cash flow and managing trade debtors is a critical part of a successful business.

Optical character recognition (often referred to as OCR) software can be used to read receipts, purchase invoices and expenses. Widely used software applications use this technology to post transactions from a pdf or even a photo from your smartphone and import this directly into the accounting software. The technology is able to extract pertinent information including supplier name, dates, VAT and total amounts.

Other benefits of cloud accounting include:

• Ease of use – where traditional desktop-based systems were primarily designed for use by accountants and bookkeepers, cloud accounting software is aimed directly at businesses and their owners. They’re designed to help those in charge of making key decisions to understand their finances in real-time.
• Live reporting – with live bank feeds, automated invoice collection from supplier accounts and up to date dashboards, business owners can have the financial information they need at the tip of their fingers to help with those important business decisions and future planning.
• Low cost – gone are the days of heavy investment in accounting software. Pricing models for cloud accounting are generally on a monthly subscription basis, making these much more affordable.
• Accountancy, technical and advisory support – cloud software allows accountants access to live data, eliminating the back and forth emails and presenting an opportunity for your accountant to assist with business advisory matters should that be required.
• Additional applications – unlike the ‘one size fits all’ approach, of traditional desktop accounting solutions, cloud accounting offers the ability to integrate your accounting platform with specific apps for your business. These are additional pieces of software designed to further enhance your finance function. This could be an app to manage inventory, cash flow, payment processes, expenses, credit control and much more. These connect with your accounting platform to provide the detailed insights needed for each individual business.

How we can help

It’s tricky to navigate the world of cloud accounting with so many platforms available, including (but not limited to) Xero, QuickBooks, Sage and Farmplan and the vast number of additional applications competing in the market. Assessing which best meets the needs of your business, and which supplementary apps are available, to further enhance the capabilities of cloud accounting, is now an important task for business owners and their finance teams.

For those entrepreneurs who wish to adopt electronic invoicing, we can assess the preferred platform to ensure it’s able to meet the required standards in terms of authenticity, integrity and legibility, and help businesses adopt the appropriate processes and controls.

We regularly advise our clients in this area and our cloud accounting team can work with your business to find the best solution. We can then assist in the implementation and training, to ensure the use of the chosen platform and apps is maximised.

If you’d like to discuss ways to improve your current process or set up a new cloud-based system, contact our Cloud Accounting Manager, Becca Durrant.