The Qualified Invoice System was launched in Japan in October 2023. Under the Invoice System, businesses are required to deliver and retain qualified invoices in order to claim purchase tax credit for consumption tax.

Furthermore, as of January 2024, the Electronic Books Preservation Act (also known as the Electronic Bookkeeping Act) mandates that documents exchanged in electronic format must be stored in their original electronic form. Businesses primarily engaged in electronic transactions must therefore exercise particular caution when handling qualified invoices under this law.

Electronic transactions, which enable remote document exchange, provide a high degree of convenience and are now widely used by businesses. Similarly, digital invoices, which are electronic versions of qualified invoices, are becoming increasingly widespread. Because all processes, from creation and issuance to storage, can be performed electronically, digital invoices can improve back-office operations and boost productivity.

In this article, we’ll provide a clear explanation of the basics of digital invoices, including why they’ve gained attention in Japan in recent years, their benefits, and points to note.

What’s in this article?

• What are digital invoices?
  
• Why digital invoices are gaining attention
  
• The international Peppol standard
  
• Benefits and key points for digital invoices
  
• How Stripe Invoicing can help
  

What are digital invoices?

A digital invoice, also known as an electronic invoice, is a document that meets the requirements of the Invoice System. In other words, it’s a qualified invoice that has been converted into electronic data. When businesses use these digital invoices, they’re considered electronic transactions and must be stored in accordance with the Electronic Bookkeeping Act.

The difference between digital invoices and electronic invoices

As mentioned above, digital invoices and electronic invoices are generally considered to be the same thing. Therefore, there’s no clear distinction between their definitions. However, when we look a little closer, there are subtle nuances between the two terms that can lead to their distinct usage in different business settings.

• Digital invoice: This refers to a qualified invoice in electronic data format (electronic invoice) that has been standardized and structured based on the international Peppol (Pan-European Public Procurement Online) standard. With digital invoices, the entire business process, including internal and external interactions, is optimized due to the underlying automated processing system.

• Electronic invoice: This refers to a qualified invoice that has been converted into electronic data. For example, if you manually convert a paper or Excel-created invoice into a PDF and email it to a business partner, this qualifies as an electronic invoice. Unlike digital invoices, which are always qualified invoices, the term electronic invoices can also refer to electronic documents generally called "invoices," not limited solely to qualified invoices.

This shows that the term “electronic invoice” has a broader meaning, as it can refer not only to qualified invoices but also to regular invoices, depending on the situation. The details of the Peppol standard will be explained later in this article, but for now it's helpful to understand that the terms digital invoices and electronic invoices are sometimes used differently depending on whether the invoices are standardized and structured.

Please note that, in this article, our explanation of digital invoices will be based on the understanding that they’re qualified invoices compliant with the Peppol standard.

Why digital invoices are gaining attention

There is no legal obligation to use digital invoices, and businesses are permitted to continue exchanging qualified invoices in paper format. However, in today's Japan, where the Invoice System and the Electronic Bookkeeping Act are in effect, using digital invoices can eliminate unnecessary work, reduce costs, and enhance security. In addition, because digital invoices allow for smooth transactions, even when handled remotely, their convenience and efficiency make a strong argument for adoption.

In particular, complying with the Invoice System, which has detailed mandatory requirements, can be time-consuming and labor-intensive when done by hand or manually entered on a computer. Mistakes and omissions are likely to occur, potentially making it difficult to create a qualified invoice that meets the requirements. For example, when creating qualified invoices, you must take care to ensure there are no errors in the Invoice System registration number proving your status as a qualified invoice issuer, or in how you record the consumption tax notation in accordance with the Invoice System. If the information you provide is insufficient, the invoice will not be considered a qualified invoice, and your business partner will be unable to claim the purchase tax credit. This carries the additional risk of damaging your company’s reputation and reducing buyer trust.

Against this backdrop, many businesses are considering implementing web invoice systems that are compliant with Peppol and the Invoice System. This has caused digital invoices to gain a great deal of attention.

The international Peppol standard

Under the Invoice System, there are no legal requirements regarding the writing style or format of qualified invoices. Therefore, as long as the mandatory information is accurately stated, whether handwritten or electronic, it’s acceptable. However, when handling electronic qualified invoices, some kind of common mechanism is necessary to enable communication between various software systems and to achieve smooth automated processing.

Therefore, in order to achieve interoperability of electronic documents, Japan has adopted the specifications of the international Peppol standard. Peppol is managed by the Belgian international nonprofit organization OpenPeppol. In Japan, the national government's Digital Agency serves as a member of Peppol and acts as the managing authority. The Digital Agency has developed JP PINT specifications, which are digital invoice standards tailored for Japan.

Under the specifications of the international Peppol standard, invoices can be sent and received through each user's Peppol access point, eliminating the need for users to employ identical software. Businesses can therefore continue to use their existing interfaces, enabling smoother transactions not only domestically but also internationally.

It should be noted that even if a qualified invoice does not comply with the Peppol standard, it’s still possible to issue and store it. That said, it’s expected that the entire transaction process, including contracts and order processing, will continue to undergo digital transformation (DX) in the future. This means that establishing a Peppol-compliant system can be expected to lead to improvements in future business processes and systems.

Note: DX refers to initiatives that leverage digital technology to create new value and improve people's lives.

Benefits and key points for digital invoices

Benefits

The benefits of digital invoices include the following:

• Elimination of manual errors: Even when dealing with multiple consumption tax rates—the 10% standard tax rate and the 8% reduced tax rate—bulk data can be imported from a single source, without having to enter each data point manually. Additionally, calculation errors can be avoided thanks to the system’s automatic calculation function.

• Data tampering protection: Digital invoices come with electronic signature functionality, the ability to view access history, and the ability to track revision and deletion history—fraud prevention and security features that are difficult to get with paper-based systems.

• Reduced storage costs: Digital invoices are stored electronically, eliminating the need for physical storage space and filing costs associated with paper documents. Additionally, when you need to check documents, you can locate them quickly using the built-in search function.

• Remote work compatibility: Even when handled by staff working remotely, the entire workflow can be completed swiftly.

Key points

While digital invoices offer various benefits as described above, there are several points to consider when adopting them.

• Employee notification required: To prevent operational disruptions, be sure to provide advance notification of proper procedures to any employee responsible for handling digital invoices. When storing data, in particular, ensure a robust management system is in place to prevent accidental data deletion. Furthermore, to prevent data leaks, it’s important to establish and strictly enforce password setup and management, and to conduct security training.

• Business partners not adopting digital invoices: For a variety of reasons, some of your business partners could find it difficult to adopt digital invoices. If that’s the case, you might need to handle both paper and digital invoices, which could increase the burden on accounting operations. Therefore, businesses considering switching to digital invoices should first determine whether they have any business partners that will still require paper documents before making their decision. Additionally, when implementing digital invoices, it’s important to prepare in advance a notification about the use of electronic invoices and obtain your business partners' consent as early as possible.

Under the current Invoice System, as digital invoices become more widespread, it’s important to understand not only the mandatory requirements specified by the system but also the key considerations for digital invoicing to ensure your qualified invoices continue to be properly issued and stored. Therefore, businesses that are planning to adopt digital invoices should carefully consider these points, prepare thoroughly, and then begin the implementation process to ensure a smooth transition to digital invoicing.

With digital invoices, your business can centralize invoice management within a single system, significantly reducing the time and effort required for invoice creation and storage. This will help improve overall business efficiency and facilitate smoother, more effective back-office operations.

How Stripe Invoicing can help

Stripe Invoicing simplifies your accounts receivable (AR) process—from invoice creation to payment collection. Whether you’re managing one-time or recurring billing, Stripe helps businesses get paid faster and streamline operations:

• Automate accounts receivable: Easily create, customize, and send professional invoices—no coding required. Stripe automatically tracks invoice status, sends payment reminders, and processes refunds, helping you stay on top of your cash flow.

• Accelerate cash flow: Reduce days sales outstanding (DSO) and get paid faster with integrated global payments, automatic reminders, and AI-powered dunning tools that help you recover more revenue.

• Enhance the customer experience: Deliver a modern payment experience with support for 25+ languages, 135+ currencies, and 100+ payment methods. Invoices are easy to access and pay through a self-serve customer portal.

• Reduce back-office workload: Generate invoices in minutes and reduce time spent on collections through automatic reminders and a Stripe-hosted invoice payment page.

• Integrate with your existing systems: Stripe Invoicing integrates with popular accounting and enterprise resource planning (ERP) software, helping you keep systems in sync and reduce manual data entry.

Learn more about how Stripe can simplify your accounts receivable process, or get started today.