The US is steadily moving towards the digitization of invoicing. In 2015, the OMB mandated that all federal agencies issue e-invoices by the end of 2018. Now, the BPC has concluded a market pilot for B2B e-invoicing and has established an exchange network to facilitate the transfer of e-documents between businesses.
Did you know the US is among the last countries to adopt e-invoicing? Even though e-invoicing has been around for a while, many businesses are still not using it since it is not yet mandatory.
However, like many other countries, the United States has specific requirements for e-invoicing.
To start invoicing electronically in the USA, you must be aware of these requirements and ensure compliance.
This blog post will outline the main e-invoice requirements in the USA and explain how to ensure compliance. Let’s get started!
Understanding invoicing regulations in the United States
Invoicing regulations in the U.S. are decentralized, with guidelines influenced by the IRS, state laws, and industry standards. While there are no federal mandates for when invoices must be issued, maintaining accurate records is essential for tax compliance.
B2B invoicing specifications in the US
B2G invoicing in the U.S. involves strict standards to ensure transparency in government spending. Invoices must comply with the Federal Acquisition Regulation (FAR) and include contract numbers and relevant agreement details to ensure compliant transactions with government entities.
B2B invoicing specifications in the US
B2B invoices usually require a high level of detail to facilitate precise bookkeeping. To ensure clear and transparent billing, these invoices should include comprehensive item breakdowns, tax details, discounts, and any additional costs like shipping.
B2C invoicing specifications in the US
Simplified invoices are typically used for B2C transactions. These invoices include key details like the seller's information, transaction date, item description, and applicable taxes. However, B2C invoices often omit customer details unless needed for delivery or warranties.
How do you create a US invoice?
Invoicing requirements in the US are relatively relaxed compared to many other countries. There is no single approach to creating and issuing an invoice.
However, whether you are sending a sales invoice or a purchase invoice, there are three main ways that businesses issue invoices:
- Paper invoice through the mail: It entails writing invoices by hand on paper and then sending the paper invoice to the client.
- Paperless invoices in email: This involves preparing an invoice using a word processor like Microsoft Word and then attaching it to an email to the client.
- Automated invoicing: This method involves using specialized invoicing software to automatically generate your invoice, after which you email it to the client directly from the software.
Paper invoices through the mail are becoming obsolete as the world shifts to electronic invoicing to reap efficiencies such as faster processing and improved compliance.
If you are just starting out, emailed paperless invoices may be fine for you.
You can create the invoice in Word or Excel and email it as an attachment to the customer. However, for improved invoice accuracy, you may consider using invoicing software.
What information needs to be incorporated into the invoice?
However, when you create a commercial invoice, it must contain certain information for it to be valid. These include:
- The word “invoice” (clearly written at the top)
- Your business name and address
- The customer’s business name and address
- The invoice date
- A unique invoice number
- The payment due date and payment terms
- A detailed description of the goods sold or services rendered
- The quantity and price of each good/ service
- All additional charges (such as shipping, insurance, etc., added to the invoice price must be specified)
- All rebates
- The total amount due
Note that if you import or export goods, the merchandise port of entry or country of origin must be included in the invoice.
You must also include sales tax in your invoice where applicable. Sales tax differs from state to state across the US, so be sure to check with local tax authorities for specifics before sending an invoice.
Lastly, you should include your payment information at the bottom of your invoice. The information to include will depend on the type of payment you accept.
For example, you need to include your account number, routing number, bank address for ACH, account number, SWIFT code, bank codes, bank address for wire transfer, and mailing address for checks.
How to number invoices in the US
There are no specific requirements for formatting invoice numbers in the US. However, invoice numbers should be alpha-numeric, unique, sequential, consistent, scalable, and date-referenced for accounting purposes.
Since the US has no specific requirements for formatting invoice numbers, you can use any numbering system that makes the most sense.
Some rules to follow when formatting your invoice numbers include:
- Uniqueness: Each invoice should have a different number. Unique invoice numbers allow you to easily trace and retrieve any issued invoice in your system when needed.
- Sequentiality: Invoice numbers should be in sequential order. This helps in chronological organization and clearly indicates the number of invoices issued.
- Consistency: The format and structure of the invoice number should be consistent across all invoices. This helps in categorizing invoices efficiently.
- Date reference: Incorporating the invoice date as a prefix or suffix within the invoice number can help quickly identify when the invoice was generated.
- Alpha-numeric format: Create your unique invoice numbers using a combination of letters and numbers. Some people include hyphens. However, limit the use of special characters, as these may cause issues in some databases or software systems.
- Scalability: Your invoice numbering system should be able to accommodate the growth of your business. As the number of invoices increases, the numbering system should still be able to produce unique and sequential invoice numbers.
Example of an invoice number
A typical example of an invoice number is OH-CLV-2023-06-003.
This can be broken down as follows:
- OH stands for the state the customer’s company is located (Ohio in this case)
- CLV is your abbreviation of the customer’s company
- 2023 is the year the invoice was issued
- 06 is the month the invoice was issued
- 003 is the consecutive invoice number (showing that it is the third invoice to the client in that month).
Note the use of letters and numbers to create a unique invoice number. In this case, the customer’s location (state), company name, and date are incorporated into the numbering system to facilitate retrieval.
The last three elements of the numbering system also show sequential numbering and scalability.
For example, if OH-CLV-2023-06-003 is the third invoice to the particular client in that month, the first invoice to them was OH-CLV-2023-06-001, and the next invoice to them in that month will be OH-CLV-2023-06-004.
Having three elements makes this numbering system scalable and can accommodate up to 999 monthly invoices for a particular client.
E-invoicing rules and regulations in the USA
In 2015, the US government mandated that all federal agencies issue electronic invoices for goods or services by the end of 2018. To comply with this mandate, agencies must use an e-invoicing system that can generate, send, receive, and archive invoices electronically.
The rules and regulations for electronic invoicing in the US include:
Format (XML-based Universal Business Language (UBL)
In the US, e-invoices must use the XML-based Universal Business Language (UBL), which defines a standardized XML schema for electronic invoices.
This means that UBL provides a consistent way to represent invoice data electronically instead of paper-based or PDF invoices, which can vary widely in format and structure.
This consistency is vital for electronic data interchange (EDI) between businesses’ computer systems and software applications. Thus, the standard XML-based UBL format allows businesses and agencies to exchange electronic invoices easily.
Signature and authentication requirements
For the e-invoicing system to be compliant, it must use a digital signature and authentication mechanism. This ensures that the documents are sent securely and cannot be altered without detection.
Retention requirements
USA has a 7-year invoice archiving requirement. So, after issuing an electronic invoice, the invoice and supporting documents must be stored for at least seven years.
Issuing requirements
When sending invoices, agencies must either generate a unique identification number or include the Invoice Reference Number (IRN) in the subject line of the invoice.
Additional requirements will include the use of a post-payment notice and a commercial letter of credit.
Receiving requirements
To receive e-invoices, agencies must provide their suppliers with a valid email address and/or identify a web-based system where the supplier can upload invoices.
How to send and receive compliant e-invoices in the USA
To send and receive compliant invoices in the USA, you need to follow these steps:
1. Find a reliable Access Point provider
The US invoicing model follows the four-corner model, similar to that of the PEPPOL network. This means that you need access points to access the network and be able to send and receive e-invoices.
Thus, the first step to sending compliant e-invoices in the United States is choosing a reliable Access Point provider. Some of the most reputable providers include Storecove, which was part of BCP in the pilot project.
Storecove provides a complete e-invoicing solution for businesses and government agencies in the USA and is interoperable with other e-invoicing networks worldwide.
2. Register on the network
Once you have chosen an access point provider, you will need to register on the network and provide your business details. This will typically include your company name and address and your contact details.
3. Connect to the network
After you have registered on the network, you must connect your accounting or billing software with the Access Point provider. This will allow you to send and receive compliant e-invoices directly from your system.
4. Start sending and receiving e-invoices
Once you are connected to the network, you can start sending and receiving e-invoices with other vendors or suppliers registered on the network. This will help improve efficiency and reduce costs for your business.
Who must comply with e-invoicing regulations in the USA?
All agencies and government departments, including the Department of Defense (DoD), the Department of Energy (DoE), and the General Services Administration (GSA), are required to comply with the e-invoicing regulations.
However, businesses and individuals don't need to start using e-invoicing. Most businesses choose to use electronic invoicing because of the efficiencies it offers (like faster processing, cost savings, reduced errors, etc.).
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Benefits of e-invoicing for businesses in the USA
Electronic invoicing offers several benefits to US businesses, as it streamlines the invoicing process and enhances overall efficiency. Some specific advantages of e-invoicing for businesses and the government include:
Cost savings
E-invoicing can help businesses save money on paper, printing, and postage costs. When OBM introduced the mandate in 2015, it estimated savings of between $150 million and $200 million annually.
Faster payment
Electronic invoicing leads to quicker invoice delivery, as invoices are delivered instantly. It also speeds up invoice processing, reducing the time between the delivery of goods or services and receiving payment.
Improved cash flow
E-invoicing can help businesses improve their cash flow by decreasing the time to pay and collect invoices. This can help reduce the risk of late payment penalties and interest charges.
Reduction in errors
Electronic invoicing reduces the risk of errors that often occur in manual data entry that characterizes traditional paper invoicing. This leads to more accurate invoices, reducing the likelihood of payment delays and disputes.
Reduction in invoice fraud
Fraud cases related to paper invoices are more common than those related to electronic invoices. This is because it is easier to alter paper documents and harder to track them. E-invoicing can help reduce fraud by providing a secure and tamper-proof system.
Increased efficiency
Electronic invoicing can help businesses become more efficient by automating processes, facilitating invoice processing, reducing errors, improving invoice tracking, and more.
Improved data collection
E-invoicing can help businesses collect valuable data that they can use to improve decision-making, manage costs, and identify growth opportunities. Invoices contain a wealth of information, such as supplier details, purchase prices, and product codes.
E-invoicing allows businesses to automate processes, improve efficiency, and reduce costs, which can help them gain a competitive advantage in the market.
Improved invoice tracking
Electronic invoicing systems allow businesses to track the status of their invoices in real time. Companies can see when an invoice has been delivered and paid, providing greater transparency into financial transactions.
Best practices for invoicing compliance
Here are things US businesses can do to ensure compliance:
Partner with a reliable access point provider
Choose a reputable access point provider to ensure your e-invoicing system meets compliance standards. This helps in maintaining smooth business transactions and proper entry documentation.
Reliable providers support adherence to federal law and facilitate the correct exchange of invoices within the harmonized tariff schedule, ensuring that all documentation is acceptable and compliant.
Maintain accurate and detailed records
Ensure that all invoices and associated documentation are thoroughly detailed and stored for future reference. This includes keeping a detailed record of services sold, the national sales tax applied, and any other pertinent entry summary documentation.
Accurate financial statements and professional invoices are critical for effective financial management and compliance with legal documents.
Ensure timely issuance and processing
Issue invoices promptly and follow up on overdue payments to avoid financial discrepancies. Proper filing entry and timely handling of overdue payments help in managing cash flow and maintaining compliance with federal law.
Ensure that all documentation, including necessary substitute documents, is processed and filed correctly.
Provide adequate descriptions and accurate information
Each invoice should contain an adequate description of the goods or services sold, including pricing and any additional charges. This ensures that entry documentation is complete and aligns with acceptable documentation standards.
Accurate information helps in preventing disputes and ensures compliance with financial management practices.
Adhere to legal and regulatory requirements
Follow all relevant federal laws and regulations pertaining to invoicing. This includes ensuring compliance with the harmonized tariff schedule and any other legal documentation requirements.
Keeping up-to-date with changes in federal law and industry standards is crucial for maintaining compliance and avoiding penalties.
Utilize electronic invoicing solutions
Implementing electronic invoicing solutions can streamline the invoicing process and enhance accuracy. These systems help in maintaining compliance by automating documentation processes and ensuring that all invoices meet federal and industry standards.
An automated system can also facilitate better financial management and easier tracking of professional invoices.
Takeaway: Connect with Storecove and send compliant electronic invoices in the US
The US is on the path of digitalizing its invoicing systems. After the 2015 US OMB’s (Office of Management and Budget) mandate to federal agencies to e-invoice by the end of 2018, establishing the Business Payments Coalition (BPC) was the next giant leap in that direction.
The BPC is assisting in the transition from a paper-based invoicing system to electronic invoicing.
After successfully running a market pilot for B2B e-invoicing, the BPC has established a document exchange network that facilitates the exchange of invoices and other electronic invoices between businesses.
The exchange network uses the four-corner model, just like PEPPOL, where e-invoices are shared and received through an Access Point service provider that connects the network to the users.
Thus, the first step to sending compliant e-invoices in the US is connecting with an Access Point service provider.
Interestingly, Storecove is one of the most reliable APs you’ll find. Storecove was part of the BCP in the pilot program and provided excellent e-invoicing solutions to businesses.
With Storecove’s e-invoicing solution, you can connect your business to the US exchange network, helping you to comply with e-invoicing regulations automatically and transfer documents with customers seamlessly. Get in touch with us today to explore our e-invoicing solution!
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