In the digital age, entrepreneurs, the self-employed and founders are continually trying to optimise and digitalise their processes. E-invoicing, a form of electronic invoicing, has proven to be an effective method of saving time and resources while significantly reducing administration. In this article, you'll find out what an e-invoice is; how to create one; the pros and cons; and the legal requirements that you'll need to meet.

What's in this article?

• What are e-invoices?
  
• XRechnung: The German e-invoicing standard
  
• How do you create an e-invoice?
  
• What are the pros and cons of electronic invoicing?
  
• What does an electronic invoice need to be valid?
  
• How to comply with archiving laws when using electronic invoicing
  

What are e-invoices?

An electronic invoice – often shortened to e-invoice – is an invoice created, sent and received electronically. This format replaces traditional paper invoices with digital documents that can be shared online. E-invoices contain the same information as their physical counterparts – such as details of the product or service, prices, taxes and payment details – but they are easier to process, store and archive.

In several countries, e-invoicing is being encouraged through legislation because it helps to combat fraud and tax evasion. It also offers many other benefits. To be considered an official request for payment, electronic invoices must meet certain legal requirements.

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 optimized processing, electronic invoices must be created in a standardized 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.

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 standardize reporting.

How can businesses comply with e-invoicing regulations?

Starting January 1, 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 nonstandard electronic invoice) will also become mandatory.

• In 2025 and 2026, nonstandard 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 authorized to issue nonstandard 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 do you create an e-invoice?

To create an e-invoice, you need invoicing software or an online service that allows you to create invoices in the predefined electronic format.

Important elements of an e-invoice include:

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

The software should be able to generate invoices that meet the legal requirements and send them securely by electronic means. For e-invoices, XML format has proven to be very effective, as it offers a structured and standardised method of exchanging invoice data.

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

• Open your XML template: Start your preferred text processing application and open the XML template for e-invoices. This template should already contain the basic structures, such as tags for the invoice header, customer information, product information and payment details.
  
• Fill in the required fields: Go through the template and fill in all the required fields with the relevant information. Usually, this includes data such as the invoice date, invoice number, customer name and address, product description, quantities, unit prices and total price.
  
• Check the accuracy of the data: Once you have entered all the information, carefully check that all the data is accurate. Make sure that all amounts have been correctly calculated and that all the relevant details have been entered accurately and in full.
  
• Validate the XML file: Use an XML validation tool or a similar feature in your text processing software to ensure that your XML file meets the required standards. This is an important step to ensure that the invoice will be processed properly and accepted.
  
• Save the XML file: Once you are sure that your e-invoice in XML is correct and complete, save the file to your computer or cloud storage. Make sure that you use a meaningful 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 organizations, 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 organizations 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 digitization and promotes sustainable business practices. However, organizations 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: Organizations 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 electronic invoicing?

Sending invoices digitally is becoming increasingly popular. This development has its pros and cons, which apply to businesses and public authorities of all sizes.

Pros

• Cost savings: Sending electronic invoices eliminates printing and shipping costs. Processing invoices digitally can also save on working hours that would otherwise be spent on manual tasks.
  
• Payments received faster: Electronic invoices reach the recipient immediately, which can speed up the payment process. Several systems allow one-click payments, which can further shorten payment terms.
  
• Improved efficiency: Creating, sending and processing invoices digitally allows for more efficient accounting. Errors from manual data entry are reduced and the whole process is faster.
  
• Eco-friendly: Doing away with paper helps to protect the environment and helps businesses reduce their carbon footprints.
  
• Better traceability: Electronic invoices can be stored and archived more easily and can be retrieved when needed. This simplifies bookkeeping and makes it easier to comply with legal retention requirements.
  
• Increased security: Many electronic invoicing systems offer strong security measures that reduce the risk of fraud and loss. Digital signatures and encryption ensure the authenticity and integrity of the invoices.
  

Cons

• Technical requirements: Businesses will need to invest in the relevant software or services.
  
• Resistance to change: Customers or suppliers may be hesitant to move away from paper invoices.
  
• Compatibility issues: Different standards and formats can cause compatibility issues between the sender's and receiver's systems, which would make it difficult to exchange the electronic invoices.
  
• Security concerns: Despite the high security standards, there are concerns about data protection, data security and the risk of cyberattacks. Businesses must ensure that their systems are up to date with the latest technology.
  
• Legal requirements: Complying with the legal requirements for electronic invoices – including authenticity, integrity and readability requirements – can be complicated. On top of this, the legal requirements differ from country to country.
  

Despite these disadvantages, the pros of electronic invoicing outweigh the cons for most businesses and public authorities. As ongoing digitalisation and improvements in technical solutions continue to lower the hurdles for making the change, more and more businesses are choosing electronic invoicing.

What does an electronic invoice need to be valid?

For electronic invoices to be valid, they must meet the following legal and technical requirements. These criteria ensure that electronic invoices will be accepted by the financial authorities and that the data in them is trustworthy and unaltered.

• Authenticity of origin
  Authenticity of origin means being certain that the invoice actually originated from the specified sender. This can be done in a variety of ways, including digital signatures, electronic data interchange (EDI) or by using an internal verification procedure to establish a reliable trail between an invoice and the supply of goods or services.

• Content integrity
  Content integrity means that the content of the invoice was not altered after it was sent. Digital signatures or EDI processes also provide mechanisms to ensure that invoice data is unaltered.

• Readability of the invoice
  An electronic invoice must be able to be read by people. This means that the invoice must be in a format that allows the parties concerned to view it, such as a PDF document. Readability must be guaranteed for the entire retention period required by law.

• Regulatory compliance
  Electronic invoices must meet the same legal requirements as for paper invoices. This includes data such as the issue date; unique invoice number; the service provider's tax identification number or value-added tax (VAT) identification number; full name and address of the service provider and recipient; quantity and type of the delivered goods or the scope and nature of the service provided; the payment for it and the amount of tax due; and the applicable tax rate or tax exemption notice.

• Retention and archival
  Both the issuer and receiver of an electronic invoice are required to retain the invoice for the period required by law (in many countries this is ten years). The storage system must allow the invoices to be accessed within a reasonable period of time and the above requirements for authenticity, integrity and readability must be met over the entire retention period.

• Consent of the recipient
  In many legal systems, the prior consent of the receiving party is required to be able to send electronic invoices instead of paper copies. Consent may be given expressly or tacitly, but it must comply with the statutory provisions.

How to comply with archiving laws when using electronic invoicing

Archiving of electronic invoices must comply with the law, including regulations relating to retention periods and ensuring readability throughout the entire period. Businesses must ensure that electronic invoices are stored in a way that allows them to be accessed at any time and viewed in a format corresponding to that of the original document.
These regulations aim to guarantee the authenticity, integrity and readability of electronic documents over a defined period of time. The exact requirements vary from country to country, but some basic principles are largely standardised.

Key aspects of archiving laws for electronic documents

• Authenticity and integrity
  The archiving system must guarantee that the authenticity of origin and content integrity of electronic documents are retained over the entire archiving period. This means that it must be possible to prove that the invoices actually originated with the specified sender and that their content has not been changed since they were issued. Technology such as digital signatures or specialised archiving systems, which store files in an uneditable state, plays a central role in this.

• Readability and accessibility
  Electronic invoices must be archived in a format that guarantees that the file will remain human-readable for the entire retention period. Invoices must also be made available for inspections and audits within a reasonable period of time. Specialised software is often required for this, which facilitates the long-term readability and fast retrieval of the documents.

• Retention periods
  The above-mentioned legal retention periods for electronic invoices vary from country to country. In Germany, it is ten years. During this period, businesses must be able to provide all archived invoices to the financial authorities upon request. Contact the relevant tax authority or a tax consultant for the exact deadlines and requirements.

• Data privacy
  Data protection regulations must also be observed when archiving electronic invoices. Personally identifiable information contained in invoices must be protected as per the relevant data protection law, such as the General Data Protection Regulation (GDPR) in the European Union. This includes data security measures and restrictions on access to and the processing of this data.

• Technical and organisational measures
  Businesses must take technical and organisational measures to ensure compliance with archiving regulations. This includes choosing suitable archiving systems, regularly checking data security and protecting against data loss. Implementing a reliable document management system is often an important step in meeting these requirements.

For detailed information on a wide range of bookkeeping and financial management issues affecting businesses, visit the Stripe resources portal. There is also a specific section on invoicing. For support and advice on all aspects of your business's invoicing, start now with Stripe.