In the digital age, business owners, freelancers, and startups are always searching for ways to improve and digitise their processes. E-invoicing is a type of electronic billing that has been shown to effectively save time and resources while significantly lowering administrative workload.

In this article, we’ll take a look at what an e-invoice is, how to create one, its advantages and disadvantages, and the legal requirements you should be aware of.

What’s in this article?

• What is an e-invoice?
  
• What is the law on mandatory e-invoicing?
  
• How can businesses comply with e-invoicing regulations?
  
• How are e-invoices created?
  
• What requirements must businesses meet for e-invoicing?
  
• What impact does the law on mandatory e-invoicing have on businesses?
  
• What are the pros and cons of sending electronic invoices?
  
• What are the requirements for valid electronic invoices?
  
• How do businesses comply with laws on archiving electronic invoices?
  

What is an e-invoice?

An electronic invoice, (called an E-Rechnung or e-invoice), is an invoice that is created, sent, and received in an electronic format. This format allows you to replace traditional paper invoices with digital documents sent online. E-invoices contain the same information as paper invoices – details of products or services, prices, taxes, and payment information – but they are easier to process, store, and archive because they are digital.

In many countries, legal requirements have encouraged the adoption of electronic invoices, since they offer several advantages and help combat fraud and tax evasion. However, to be considered an official request for payment, electronic invoices must meet certain legal requirements.

XRechnung: The German e-invoicing standard

XRechnung is a standard for electronic invoicing, developed specifically for the public sector in Germany. It’s a standardised digital format for transmitting invoice data with the aim of improving efficiency, reducing errors, and speeding up invoice processing. XRechnung is part of initiatives to digitise public administration, and it aligns with the requirements of EU Directive 2014/55/EU on promoting electronic invoicing in public procurement.

The XRechnung standard specifies a set of structured data that must be included in an electronic invoice to enable automated processing across different media without errors. This includes information such as the invoice issuer, invoice recipient, service period, invoice amount, and tax information. The standard supports both semantic and syntactic uniformity, so that the data transmitted is in a defined structure and a clear, machine-readable format.

XRechnung is particularly important for suppliers and service providers who do business with public authorities in Germany. Since 27 November 2020, it has been mandatory for all public contracting authorities in Germany to receive and process invoices in an electronic format, such as XRechnung. This measure aims to increase transparency and efficiency within the public sector, and to promote wider acceptance and adoption of electronic invoices in business transactions.

What is the law on mandatory e-invoicing?

Starting in 2025, all business-to-business (B2B) businesses in Germany will be required to receive and process invoices electronically as e-invoices under the Growth Opportunities Act. After varying transitional periods, issuing an e-invoice will also become mandatory. This aims to enable end-to-end digital processing, improve process efficiency, and reduce invoice processing costs.

The law mandates strict security and data protection standards to ensure the integrity and confidentiality of transmitted data. Businesses must make sure that their systems meet the legal requirements to avoid potential penalties.

For optimised processing, electronic invoices must be created in a standardised format. The use of widely adopted common standards such as ZUGFeRD or XRechnung enables better compatibility across different accounting systems.

Companies that fail to comply with the law may be subject to penalties. These penalties can range from fines to restrictions on participation in public tenders.

Stripe supports the compliant creation and routing of e-invoices using XRechnung through app partners of Stripe Invoicing. They require no coding and are easy to set up. These partners support invoice and subscription workflows through both the application programming interface (API) and the Dashboard, and they also provide support for similar requirements in various other geographies. Learn more about the Billit app on the Stripe App Marketplace or visit our partner, Billit’s website, which can help with these requirements.

Small and medium-sized enterprises (SMEs) will benefit from longer transition periods and special support measures to help them switch to e-invoicing. These include information campaigns, financial support, and technical assistance.

The Federal Ministry of Finance (Bundesfinanzministerium, or BMF) plans to introduce an electronic reporting system for domestic B2B sales in the future to standardise reporting.

How can businesses comply with e-invoicing regulations?

Starting 1 January 2025, all domestic B2B businesses will be required to receive and process e-invoices. After the defined transitional periods, issuing a standard e-invoice (rather than a paper or non-standard electronic invoice) will also become mandatory.

• In 2025 and 2026, non-standard electronic invoices and paper invoices will be accepted in addition to e-invoices.
  
• In 2027, only businesses that reported a total turnover of less than €800,000 in 2026 will be authorised to issue non-standard electronic invoices and paper invoices.
  
• From 2028 onward, only e-invoices may be issued.
  

Mandatory e-invoicing means that businesses must create, send, and receive their B2B invoices in a structured, machine-readable format to enable electronic processing. Among the few exceptions are simplified invoices under €250, such as fuel receipts or hospitality receipts, and also invoices for tax-free transactions and invoices for tickets (see Section 34 of the VAT Implementation Ordinance). However, these invoice-issuing businesses must still be able to receive and process e-invoices.

Below, we’ll take a look at the specific information that a new e-invoice must include, and the format it must be created or transmitted in.

How are e-invoices created?

To create an e-invoice, you will need invoicing software or an online service that enables invoices to be created in the specified electronic format.

Important elements of an e-invoice include:

• Invoice issuer, including tax number, and recipient
  
• Unique invoice number
  
• Invoice date
  
• Description of the goods or services supplied
  
• Amounts and taxes
  

Your invoicing software should be able to generate invoices that meet legal requirements while transmitting them electronically in a secure manner. The XML format has proven itself to be particularly useful for electronic invoicing, as it provides a structured and standardised way to exchange invoice data.

Step-by-step guide to creating an e-invoice in XML format

• Open your XML template: Start your word processing software of choice and open the e-invoice XML template. This template should already contain the basic structure, such as tags for the invoice header, customer information, product information, and payment details.
  
• Complete the required fields: Complete the template by filling in all the required fields with the appropriate information. This typically includes details such as invoice date, invoice number, customer name and address, product descriptions, quantities, unit prices, and total amount.
  
• Verify that the information is correct: Once you’ve entered all the information, carefully review the data to make sure it’s accurate. Make sure that all amounts have been calculated correctly and that all relevant details are complete and correct.
  
• Validate the XML file: Use an XML validation tool or similar feature in your word processing software to confirm that your XML file meets the required standards. This is key to ensuring that the invoice is processed and accepted properly.
  
• Save the XML file: Once you have confirmed that your XML e-invoice is accurate and complete, save the file to your computer or cloud storage. Make sure to use a descriptive file name that clearly identifies the invoice.
  

What requirements must businesses meet for e-invoicing?

The first question is whether invoice data can be translated into an e-invoice or XML format with your business’s current software. If this can’t be done, it’s best to use other software or an online generator tool.

Additionally, your business will need to decide whether to send XRechnung invoices or ZUGFeRD invoices. ZUGFeRD combines structured data with a visual PDF, whereas XRechnung relies solely on structured data.

How you send invoices is also important. If you need to send multiple invoices to organisations, email is not the best option. One option is to use PEPPOL: using PEPPOL (Pan-European Public Procurement Online), developed by the EU, you can set up multiple links with organisations from a single access point.

To integrate this new technology into the accounting process, the technical requirements must be determined and the appropriate training must be provided to the relevant employees. Depending on the size of the company and its accounting systems, the transition can be costly and time-consuming, so companies should begin the process well in advance.

What impact does the law on mandatory e-invoicing have on businesses?

The introduction of mandatory e-invoicing presents both opportunities and challenges, requiring companies to reevaluate and update their systems and processes to meet the new legal requirements.

While the transition may involve cost and effort, the long-term benefits of increased efficiency, cost reduction, environmental sustainability and improved compliance are significant. E-invoicing marks a key step in digitisation and promotes sustainable business practices. However, organisations should carefully plan and manage the initial challenges to ensure a seamless transition.

Here are some of the key implications and adjustments that businesses need to consider as a result of mandatory e-invoicing:

• Compliance requirements: Organisations must ensure that their processes, billing, and accounting systems comply with both technical and regulatory requirements, including compliance with specific formats such as ZUGFeRD or XRechnung in Germany. Since Germany has strict data protection laws, businesses must ensure that their handling of e-invoices complies with the General Data Protection Regulation (GDPR) and other applicable data protection regulations.
  
• Digital transformation: Companies might need to invest in new or upgraded IT systems to effectively create, send, and receive e-invoices. This can involve upgrading software and possibly purchasing new hardware. E-invoicing solutions must be compatible with existing accounting and enterprise resource planning (ERP) systems to ensure smooth processing.
  
• Increased efficiency: Electronic invoices can be processed faster than paper invoices, speeding up the entire accounting process. This results in faster payment processing and can improve liquidity. E-invoicing also enables the automation of many processes, reducing manual errors and increasing efficiency.
  
• Sustainability: Switching to e-invoicing helps companies go green by reducing paper consumption, thereby reducing the company’s carbon footprint.
  
• Increased customer satisfaction: Businesses can improve customer satisfaction through more efficient and accurate billing processes. Companies that adapt quickly to digital standards can gain a competitive advantage over less agile competitors.
  
• Employee training: Companies might need to invest in training to ensure their employees are familiar with new systems and processes.
  

What are the pros and cons of sending electronic invoices?

Sending invoices digitally is becoming increasingly popular. This development has both advantages and disadvantages that are relevant for businesses and public organisations of all sizes.

Pros

• Payments are received faster: Electronic invoices reach the recipient instantly, speeding up the entire payment process. Many systems also offer a one-click payment option, further reducing payment times.
  
• Cost savings: Sending electronic invoices eliminates printing and postage costs. In addition, electronic processing can save on working hours that would otherwise be spent on manual tasks.
  
• Increased efficiency: Creating, sending, and processing invoices digitally improves accounting efficiency. Errors caused by manual entry are reduced and the overall process is accelerated.
  
• Environmental responsibility: Eliminating paper helps protect the environment and allows companies to reduce their carbon footprint.
  
• Improved traceability: Electronic invoices are easier to store, archive, and retrieve when needed. This simplifies accounting and makes it easier to comply with legal archiving requirements.
  
• Increased security: Many e-invoicing systems have advanced security features that reduce the risk of fraud and loss. Digital signatures and encryption ensure the authenticity and integrity of invoices.
  

Cons

• Technical requirements: Companies might need to invest in software or services.
  
• Resistance to change: Customers or suppliers might be reluctant to move away from paper invoices.
  
• Compatibility issues: Multiple standards and formats can create compatibility issues between sender and receiver systems, making it difficult to exchange electronic invoices.
  
• Security concerns: Despite high security standards, concerns remain about privacy, data security, and the risk of cyberattacks. Companies need to ensure that their systems have the latest security features.
  
• Regulatory requirements: Complying with the legal framework for e-invoicing, which includes requirements for authenticity, integrity, and legibility, can be complex. Additionally, legal requirements vary from country to country.
  

What are the requirements for valid electronic invoices?

Electronic invoices must meet certain legal and technical requirements to be considered valid. These criteria are key to ensuring that e-invoices are accepted by tax authorities and that the data they contain is considered genuine and unaltered.

• Authenticity of origin
  Authenticity of origin is the assurance of the invoice supplier’s or issuer’s identity. This can be achieved in a variety of ways, including digital signatures, electronic data interchange (EDI), or through an internal verification process to establish a reliable audit trail between an invoice and the associated delivery of goods or services.

• Content integrity
  Content integrity means that the content of the invoice has not been altered after it has been sent. Digital signatures or EDI procedures also provide processes to ensure that invoice data cannot be altered.

• Readability
  An electronic invoice must be easily readable by humans. This means that the invoice must be provided in a format that can be read by the relevant parties, such as a PDF document. Legibility must be ensured for the entire legal retention period.

• Compliance with legal requirements
  Electronic invoices must comply with the same legal requirements that apply to paper invoices. This includes information such as the date of issue; the unique invoice number; the service provider’s tax ID number or value-added tax (VAT) ID number; the full name and address of both the service provider and recipient; the quantity and type of goods supplied or scope and type of service provided; remuneration; amount of tax due; applicable tax rate; or notice of tax exemption.

• Storage and archiving
  Both the issuer and the receiver of the electronic invoice must retain it for the legally required period (in many countries, this is 10 years). Invoices must be stored in a manner that ensures they are accessible within a reasonable period of time and that the requirements for authenticity, integrity, and legibility are maintained throughout the storage period.

• Recipient’s consent
  In many jurisdictions, the recipient’s prior consent is required to send electronic invoices in lieu of paper invoices. This consent may be expressed or implied, but it must meet legal requirements.

How do businesses comply with laws on archiving electronic invoices?

Archiving electronic invoices must comply with legal requirements, including compliance with maintaining retention periods and ensuring readability throughout the retention period. Organisations must ensure that e-invoices are stored in a manner that allows them to be retrieved at any time and, if necessary, presented in a format that corresponds to the original documents.

These regulations are designed to ensure the authenticity, integrity, and readability of electronic documents over a specified period of time. Specific requirements might vary from country to country, but certain basic principles are generally standardised.

Key aspects of archiving laws for electronic invoices

• Authenticity and integrity
  Archiving must ensure that the authenticity (true origin) and integrity (unaltered content) of electronic invoices are maintained throughout their retention period. This means that it must be possible to prove that the invoices came from the intended sender and have not changed since they were issued. Technologies such as digital signatures or specialised archiving systems that ensure tamper-free storage are key.

• Readability and accessibility
  Electronic invoices must be archived in a human-readable format for the entire retention period. In addition, invoices must be made available for review and audit within a reasonable period of time. This often requires specialised software solutions to ensure that documents remain legible and easily retrievable over time.

• Retention periods
  The legal retention period for electronic invoices varies by country, but in Germany, it is 10 years. During this period, companies must be able to provide all archived invoices to the tax authorities upon request. For exact deadlines and requirements, contact your local tax authority or tax advisor.

• Data protection
  It’s important to comply with data protection regulations when archiving electronic invoices. Personally identifiable information contained in invoices must be protected in accordance with relevant data protection laws, such as the GDPR in the European Union. This includes data security measures and restrictions on the accessibility and processing of this data.

• Technical and organisational measures
  Organisations must take technical and organisational measures to comply with archiving regulations. This includes selecting appropriate archiving systems, monitoring data security, and protecting against data loss. Implementing a robust document management system is often an important step in meeting these requirements.