What Is an Electronic Invoice? Benefits, Process, and Complete Guide

2025-10-07 • RedSun IT Services

What Is an Electronic Invoice? Benefits, Costs, A Complete Guide

An electronic invoice, or e-invoice for short, is just a digital representation of a traditional paper invoice. An e-invoice has the same information: bill details, seller and buyer information, dates, line items, tax, and totals, but delivered in a digitally accessible format. In other words, e-invoicing is the "digital representation of a paper invoice." Electronic invoicing modernizes the billing process from manual, paper invoicing to automated, software invoicing workflows developed specifically for the business environment. Electronic invoicing can benefit most businesses across industries, quickly replacing manual paper invoices due to improved efficiency and accuracy. Note that true "e-invoicing" differs from a PDF emailed copy, and is usually presented in structured data format (e.g., like XML or EDI), so a business's accounting systems (AP or AR) can report and process the item automatically. The long story short, electronic invoicing allows businesses to create, send, receive, and store invoices 100% electronically without sacrificing legal or fiscal validity and reduces the amount of paperwork generated.

Electronic invoicing goes beyond just emailing PDFs. A true e-invoice meets specific requirements (such as format, secure transmission, and authenticity) so that it has the same legal standing as a paper invoice. For example, many regulations require e invoices to be in formats like XML or EDIFACT, transmitted directly from computer to computer, and cryptographically sealed to ensure integrity. When these conditions are met, an electronic invoice is considered a valid original document with “integrity and authenticity” guaranteed.

How Electronic Invoicing Works

Electronic invoicing typically involves several automated steps that replace traditional manual billing. Here is a common workflow for generating and processing an electronic invoice:

• Invoice Creation: The seller utilizes e-invoicing software or an e-invoicing platform to create an e-invoice. The seller inputs all required information into the system (information about the buyer/seller, invoice number, items, pricing, taxes). The invoice is generated in a structured, readable digital format (usually XML) that can be processed by accounting software and ERP systems.

• Invoice Submission: The e-invoice, which has been completed, is sent electronically to the buyer. The invoice can be sent in many different ways: a seller can send the e invoice directly from their system to the buyer’s system; the seller can send an email with the e-invoice as an attached file; or the seller can send the e invoice through an e invoicing network or portal for exchange purposes. There are also specific networks like Peppol that route invoices securely between businesses and government entities, as an example.

• Invoice Receipt: The buyer receives the e-invoice via their selected channel of communication. If the invoice is structured, the buyer's accounting system can automatically import the data, avoiding the need for manual data entry. In an unstructured invoice (like a PDF), the invoice date would require manual data entry or scanning.

• Validation & Approval: The buyer's system automatically validates the e invoice for accuracy and compliance (comparison with Purchase Orders or Contracts). If they match, the invoice enters an approval workflow. For many similar platforms, the validation will do the matching and allow automatic approval, which can eliminate time-intensive processes.

• Payment: Once expedited and approved, payment will be made back to what was agreed to (i.e., bank transfer or online) - and this electronic process can leverage the Payment process, too, to initiate or track if initiated.

• Archiving: Finally, the electronic invoice is stored in digital archives for record-keeping and auditing. Unlike paper, e-invoices are easy to search, back up, and retrieve.

As a fully automated process, electronic invoicing is also faster and less prone to errors than manual invoicing. Due to the structured nature of the data, e invoices can be processed by software with very little human involvement. As one guide explains, this "allows organisations to send and receive invoices electronically, process invoices faster, and with fewer errors." As evidenced by many businesses that have adopted e invoicing, companies often see the time it takes to get invoices approved and paid drop from weeks to days.

Key Components of an Electronic Invoice System

An electronic invoice system is the software or platform that enables the above process. Modern invoicing systems typically include the following components:

• Invoice Capture & Onramp: This is where incoming invoices (from paper, PDF, email, or other systems) enter the workflow. Data from received invoices is captured (manually or via optical character recognition) and digitized. In e-invoicing, the on-ramp ensures all invoices enter the system uniformly, regardless of source.

• Data Extraction & Validation: This component extracts key data fields (invoice number, date, amounts, tax ID, etc.) and checks them. It validates the invoice against purchase orders or contracts and ensures compliance (correct tax codes, currency, etc.). Advanced systems use AI/ML to improve data capture and error detection.

• Document Imaging & Management: All invoices (and related documents) are stored in a document management module. This provides secure, indexed storage and enables quick retrieval during audits or inquiries. Some systems maintain a digital audit trail showing invoice revisions and approvals.

• Integration & Connectivity: A core feature of an e-invoice system is its ability to connect with other business applications. It often integrates with enterprise resource planning (ERP), accounting, procurement, and payment systems, ensuring data consistency across platforms. It may also connect to external e invoicing networks (like Peppol or banking portals) for direct exchange of invoices.

• Workflow & Business Rules: This handles approvals and routing. Automated business rules can route invoices to the right approvers based on amount, vendor, or department. It enforces approvals, escalations, and notifications so no invoice is overlooked.

• Visibility & Reporting: E-invoice systems give real-time dashboards and reports. Businesses gain actionable insights (e.g., invoice status, payment timelines, bottlenecks) and can better manage cash flow and vendor relationships.

• Payments & Settlement: Some platforms include payment scheduling or integration with payment gateways, completing the loop from invoice to payment.

Together, these components transform invoicing into a streamlined, end-to-end process. Rather than manually printing, mailing, and entering invoice data, an electronic invoicing system automates nearly every step. This not only speeds up operations but also makes the process scalable and auditable, all key considerations when choosing e-invoicing software.

Normal Invoice vs Electronic Invoice

A normal invoice (paper invoice or simple PDF) is a traditional billing document that’s easy to create but relies on manual printing, mailing, and data entry. An electronic invoice is a structured, machine-readable document processed through an electronic invoice system, enabling automatic validation, faster approvals, and digital archiving.

Quick differences at a glance

• Speed: e invoices are delivered and processed instantly; paper invoices require manual handling.

• Cost: paper invoices add printing, postage, and labor; e-invoicing cuts per-invoice costs significantly.

• Accuracy: electronic invoices reduce manual-entry errors and disputes.

• Automation: e invoicing integrates with ERPs and payment rails; paper requires manual matching.

• Auditability: e-invoices include digital trails and secure storage; paper needs physical filing.

Suppose you’re ready to move from manual billing to faster, more accurate invoicing. In that case, Red Sun IT Services’ online invoice generator makes the transition simple, creates professional invoices, sends PDF or structured e invoices, tracks open invoices, and speeds up invoice payment with a few clicks.

Benefits of Electronic Invoicing

Switching from paper to electronic invoices delivers measurable benefits for businesses and their customers:

• Cost savings: Paper invoices cost roughly $36 each to process; e-invoices can cost $1–$2. At scale, structured e-invoicing can save U.S. businesses billions annually.

• Faster payments & cash flow: Paper cycles average ~22 days; true e invoicing can reduce that to about 2 days, improving DSO and unlocking working capital.

• Greater accuracy: Electronic data transfer removes much manual entry, cutting typos, disputes, and write-offs.

• Automation & efficiency: E-invoicing integrates with ERP/accounting systems to automate posting, approvals, and payments, freeing staff for exception handling.

• Compliance & auditability: E-invoices include timestamps, digital signatures, and audit trails, simplifying regulatory compliance and audits; many jurisdictions now mandate e-invoicing for tax reasons.

• Visibility & control: Real-time dashboards show pending, approved, and overdue invoices so you can manage cash flow and catch duplicates or anomalies early.

• Environmental impact: Going digital reduces paper, postage, and the carbon footprint associated with physical mail.

• Global interoperability: Support for standards (UBL, EDIFACT, ANSI X12, XML) and networks (e.g., PEPPOL) enables seamless cross-border invoicing.

Overall, the transition to electronic invoicing can be transformative. As Thomson Reuters notes, e invoices “are easier to track, store, and audit for increased efficiency and accuracy,” and they speed up the entire accounts receivable process. In practice, companies that implement e invoicing see fewer errors, reduced processing times, and a dramatic drop in manual touchpoints.

Electronic Invoicing in the United States

Importantly, consider the U.S. environment, where electronic invoicing is not yet compulsory at the federal level. Countries with VAT systems tend to require e-invoices for tax reporting; however, the U.S. does not have a single e-invoice standard or e-invoice law. As a result, many American businesses still depend on email PDFs or paper checks. An industry survey found that only about 20% of business-to-business e invoices sent by U.S. large companies use structured data formats (for instance, UBL or EDIFACT), and large decisions continue to involve paper (with mail or checks) or simpler formats that require manual processing.

The mixed bag of national e-invoicing systems provides U.S. companies with a unique opening. By taking e-invoicing systems and international standards into account proactively, U.S. companies will achieve competitive advantages. Structured e invoices lead to efficiency and compliance, for example, local research estimates that switching to digital invoices could save the country $5.4 billion annually. Additionally, e-invoices have a greater probability of getting paid on time than paper invoices. In a digitally driven world, continuing to mail paper invoices (or checks) could put you at a strategic disadvantage.

In practice, the U.S. should select a platform that embraces interoperability (such as a connection to a global network) and provides safety with data exchange. Associations like the Business Payments Coalition have even launched initiatives (such as DBNAlliance) that are working toward common standards. In the meantime, however, savvy U.S. companies can lead by example: beginning an e invoicing process internally generates the same familiar gains for business (cost savings, faster cash flow) well before the legislative or regulatory framework catches up.

Why Choose an Electronic Invoice System

For businesses ready to adopt e-invoicing, selecting the right electronic invoice system (software or platform) is crucial. Modern e invoicing software comes with a range of features, so companies should focus on core capabilities that drive ROI. Key considerations include:

• Scalability
  Ensure the platform scales with volume, users, and integrations. Cloud solutions usually scale automatically.

• Customization & Flexibility
  Ability to edit templates, approval workflows, fields, branding, and role-based access to match your processes.

• Integration Capabilities
  Bi-directional connectors for ERP, accounting, procurement, and payment systems (QuickBooks, SAP, Oracle, etc.) to eliminate duplicate entry.

• Security & Compliance
  Strong encryption, MFA, regular audits, digital signatures (or blockchain options), and support for legal retention and tax formats.

• User Experience & Support
  Intuitive UI, supplier self-service portal, solid documentation, and responsive vendor support and training.

• Advanced Features
  OCR for paper-to-digital capture, AI/ML validation, mobile approvals, multi-currency/language, and real-time dashboards.

• Cost & ROI
  Compare pricing models (per-invoice vs subscription) and total cost of ownership (setup + training) against expected labor/postage savings.

By focusing on these areas, businesses can pick an electronic invoicing system that not only digitizes invoices but also streamlines the entire payables and receivables process. As the DealHub guide notes, modern e invoicing platforms include cutting-edge features like AI, analytics, and CRM integration to give a “multifaceted approach to invoicing”. In short, the right system will pay for itself through efficiency gains, cost savings, and improved cash flow.

Conclusion

In our fast-paced business landscape today, electronic invoicing may seem like a futuristic idea, but it is a real necessity. Electronic invoices and e invoicing systems provide faster payments, lower costs, and greater accuracy than paper invoices. They allow better visibility into finances for businesses and help sustain compliance with tax regulations. Even though the U.S has been slower to adopt e-invoicing compared to other regions, it is possible for American companies that adopt e-invoicing to have a sustainable advantage in efficiency and competitiveness.

For clients and companies that want a solid solution, an advanced electronic invoice system can automate repetitive processes, which would allow your team to take on more strategic work. When looking for an e invoicing platform, focus on scalability, integration with your existing tools, security, and compliance. Utilizing e-invoicing software with an easy transition from a paper invoicing process, you can turn it into a paperless process and benefit from this immediately

In conclusion, an electronic invoice (or e-invoice) is just a digital invoice that replaces paper, but also lends to the concept of automation and efficiency in businesses altogether. Companies are paid faster, have better error reduction, lower costs, and compliance with e-invoicing.