eInvoicing - what is it and how to get started in Xero

Electronic invoicing, or eInvoicing for short, is the automatic exchange of invoices between accounting software. Unlike emailing a PDF or online invoice, an eInvoice is sent directly to the accounting software of another business or Government department (almost instantly) via a secure eInvoicing network.

Why do we need eInvoicing?

Right now, there are many ways you can create and send invoices to your customers. For example, you may use Xero to create the invoice and send the PDF via email, or use a word processing software like Microsoft Word and post a hard copy in the mail. No matter how you do it, in most cases your customer still needs to open the invoice when it’s received and enter the data into their accounting system.

This manual process can lead to significant errors, such as entering the wrong amount or bank account, or sending the invoice to the wrong contact in the organisation. All such matters can force you to spend valuable time chasing customers for payment and lead to cash flow issues in your business.

eInvoicing is designed to reduce errors and delays, by sending your invoices directly to your customers’ accounting systems. This means you can send your invoice from Xero and it will arrive in your customer’s accounting system as a pre-populated bill, ready to be approved and paid. They won’t have to check their emails or manually enter your invoice into their system.

So what is eInvoicing?

eInvoicing is a digital exchange of invoices between suppliers and buyers in a structured electronic format. That means the automated direct exchange of invoices between the supplier's and buyer's software systems.

The Australian Taxation Office and the Digital Business Council have designed standards to facilitate the move to a more secure exchange of digital information via eInvoicing. Given the rise in cyber crime, among other things, eInvoicing removes the need to email invoices as 'hackable' PDF files.

The aim is that through the establishment of a common standard of interchange that all businesses (irrespective of which software they use) will be able to create an invoice that is translated into transmittable data.

What are the benefits of eInvoicing?

• Enhanced security via direct and secure channels

• Simplified processing resulting in cost savings

• Fewer errors

• Improved cashflow from quicker payments

• Available for every business, no matter their size

Enhanced security via direct and secure channels

eInvoices are received directly into the business's financial systems, minimising the risk of fake or compromised invoices. eInvoices are sent between the sender and receivers chosen service providers and software.

The integrity of eInvoicing will streamline interactions between businesses and with government. It will reduce opportunities of billing scams and money loss, as the transaction is part of a secure and reliable framework.

Simplified processing resulting in cost savings

The faster processing and payment of invoices with eInvoicing will result in cost savings.

It is estimated that it costs businesses $30.87 to process a paper invoice, $27.67 a PDF invoice, and only $9.18 to process an eInvoice. This means it is approximately 70% cheaper to process an eInvoice, saving businesses time and money.

This equates to estimated shared savings (between the sender and receiver) of $18-$21 each time eInvoicing replaces a paper invoice or PDF invoice.

Fewer Errors

eInvoicing standards will ensure that information exchanged is correct and of high quality. Reducing manual handling and the re-keying of information means fewer incorrect or lost invoices.

Improved cash flow from quicker payments

While eInvoicing brings efficiencies through simplifying and automating the exchange and processing of invoices, the biggest benefits to business will be reduced payment times and improved business cash flow, especially in government purchasing transactions. Since late 2019 government entities in some states in Australia, such as New South Wales, have been paying businesses in as little as five business days , as long as their information is correct when using eInvoicing.

eInvoicing standards will ensure that information quickly reaches its destination to be processed in the business management software. eInvoicing will help connect invoice information and set up business operations for better and quicker payment terms.

Available for every business, no matter their size

eInvoicing standards will ensure that all businesses in all sectors can access and benefit from eInvoicing, regardless of their size and the systems they currently use.

How to set up eInvoicing in Xero

Set up only takes a few minutes and is easy to do. Simply check your ABN and Branch Number* are correct in your Organisation Settings within Xero. Then, from the Business menu, click Bills to Pay, click to Receive eInvoices, then click Register to receive eInvoices and follow the prompts.

To issue eInvoices, you will need to be using the new invoicing function rather than classic invoicing.

For further information, please see attached instructions prepared by Xero which you can download for easy access. Of course, you can always reach out to Easy Books for Better Business if you'd like further advice or assistance with this matter.

*An ABN Branch (also known as a GST Branch) is used if part of your business needs to account for GST separately from its parent entity. (If this doesn't apply to you, it is likely your branch number is either 001 or 002.)

You can get your ABN branch number from the ATO portal. For example, if your Number field is '11111111111/002', the branch number is 002 and your ABN is 1111111111.

Alternatively, you can contact the ATO directly and ask them what branch you should use.

If you update your branch number in Xero, log out of your organisation and then log back in before you try connecting eInvoicing again.