Understanding Digital Invoices, eInvoices, and eBilling
When you’re adopting the newest technology, whether online or offline, there seems to be a minefield of terms and jargon to contend with. Many of these terms are used interchangeably but, oftentimes, they’re not the same thing.
For example, growth hacking and growth marketing seem similar and are commonly used in place of one another but they’re two different things. If you told a client you’re going to do growth marketing and they understood it as growth hacking, it could cause problems down the line.
What happens when your understanding of a term is different from the understanding that your client or a teammate has? It’s a recipe for confusion, poor results, and wasted time. When it comes to dealing with payment, accounting, and finances, it is especially important to make sure everyone is on the same page. There are many terms related to payments and invoicing that often cause this type of confusion.
In this article, you’ll learn what the difference between digital invoices, eInvoices, and eBilling is. You’ll also get an understanding of when each one should be used and ensure you’re always making the right moves to capture a piece of the $550 billion paid through invoices in 2019.
What are Digital Invoices?
Digital invoices have come to be the catch-all term for any invoice in an electronic or digitized format. In reality, it refers to a specific type of invoice. It can be defined as:
An invoice that can be opened, viewed, and processed digitally and is human readable.
There are two keys to the definition of digital invoice.
- It can be processed digitally
- It’s human readable
You’re able to process it without the need to print it out or otherwise physically interact with it which can cut down on data entry errors. The human readable distinction may not seem important at first glance. It maters because some invoices aren’t designed for humans to interact with. They’re sent directly to your invoicing, billing, or payments software and are automatically recorded.
A digital invoice can come in multiple formats. As long as it’s clear and readable, the sender can choose their preferred presentation. These include but aren’t limited to PDF files, Microsoft Word documents, or even scanned images.
An editable Word document (or other type of editable file) isn’t used often because the recipient can easily make changes to the file and dispute the charge amount. While uncommon, it can happen so it’s important to take the necessary precautions ahead of time. Online invoicing software such as Freshbooks takes care of that for you by sending digital invoices directly from the software. Your client can click a button to pay or print it out for their records.
When to use digital invoices
In most instances when you would use a standard invoice, you can substitute it for a digital invoice. That being said, there are many types of invoices such as:
- Proforma invoice – these are sent out before work commences and itemizes the tasks to be done. Though it’s in estimate, the final price and the price on the proforma invoice don’t differ much.
- Interim invoice – This type of digital invoice is sent out when you’re doing a long or involved project with a client. Instead of completing all the work and being paid one lump sum afterward, you can send invoices at agreed upon intervals.
- Sales invoice – This invoice is sent out after you’ve finished work for a client and want to collect your final payment.
What are eInvoices?
An eInvoice, though similar to the previous type of invoice is unique in many ways. It can be defined as:
An invoice in the form of a digital file with structured data that’s sent directly between computers and is not easy for a human to interpret or use.
The key with the above definition is that eInvoices aren’t meant to be interpreted by humans and will seem unintelligible unless you have software that can decipher them. eInvoices, since humans aren’t involved with interpreting them, have to follow a specific format and there’s no global standard. The two most popular formats for eInvoices are EDI and UBL.
EDI (Electronic Data Interchange) is a standardized configuration for exchanging business documents from one computer to another. Within EDI, there are many standards which include ANSI, ebXML, TRADACOMS and, EDIFACT. Within those standards there are also different versions of each one. When a business wants to share information with another business through EDI, both groups must first agree on the standard and version before going ahead. The problem with using EDI for eInvoices is that it can be prohibitively expensive for small businesses to set up and maintain. UBL is an inexpensive alternative.
UBL (Universal Business Language) is a standardized set of business documents in XML format. It was created by OASIS in conjunction with other relevant organizations and is provided without any royalty fees. Unlike EDI, there aren’t multiple standards and the newer versions are backwards compatible with the older versions. Small and medium businesses are the major users of the UBL for eInvoices. Though major accounting software like Quickbooks don’t produce eInvoices automatically, there are multiple plugins you can integrate to handle it for you.
When to use an eInvoice
Though eInvoices may seem a bit complicated, they serve the same purpose as digital or standard invoices. The main difference is that you only send them to other businesses. An individual that received an eInvoice wouldn’t have the proper software to decipher it.
What is eBilling?
eBilling is the true catch-all term when referring to the different types of invoices or billing that can be used online or through a computer network. It can be defined as:
The process of sending or paying bills or invoices online. It includes the systems that are used to send out the payment request and the systems used to process those payments.
eBilling can be done manually with accounting software or it can be done automatically at specified time interval. Generally speaking, the client or customer has access to past payments through a client portal or on request. They can also print out copies of their receipts and invoices for their records.
Benefits of eBilling
Because eBilling encompasses all types of online billing and also includes payment solutions, the use cases can be limitless. This comes with many benefits which include:
- Saving time on data entry and interpretation
- Reducing manual data entry errors
- When using online invoicing software clients can access payment records online
- Clients can instantly make payments online
- Ability to integrate your payments or billing system with other tools you use to run your business
- Free you and employees up to focus on higher level tasks
These are a few of the benefits of using eBilling through your payments solution but there are many more tangible and intangible things you stand to gain when switching to eBilling. For example, in the past, entire departments were dedicated to creating and tracking billing. Today, that’s often down to one person though collections are another story.
When using accounting software, there’s a lot that you’ll have to adjust to in a short amount of time. Part of that is understanding what everything means. This guide has walked you through many terms which are often used interchangeably but have distinct and different meanings.
Digital invoices are human readable electronic invoices while eInvoices are invoices sent between computers which would be difficult for humans to interpret. eBilling is the umbrella term for all online billing, payments, and the software solutions used to enable it.
Now that you have a clear understanding of how they differ and when to use each one, you’ll be better equipped interact with customers, suppliers, and partners. Of course, there are many more accounting terms you may need to master but this is a good starting point.