How German SMEs Can Transition to E-Invoicing: A Practical Guide

Paper invoices have always been the preferred method for sending and receiving payments. However, they tend to increase paper consumption. Other invoices that offer less paper consumption are sent through insecure emails, which makes sensitive invoice information vulnerable to fraudulent activities.

As the digitization of business processes becomes prevalent, paper invoices are taking a backseat to electronic formats. Federal authorities in Germany are set to introduce e-invoicing systems to non-governmental business transactions.

However, transitioning to e-invoicing systems can be overwhelming because of the complexities involved. But it doesn't have to be!

If you own a business in Germany or you're a service provider, this guide will walk you through the steps to transition smoothly. This guide will also uncover mandatory rules for e-invoicing and the obligation you need to fulfill. You'll also discover how to issue and process e-invoices in Germany.

Is electronic invoicing mandatory in Germany?

Yes, e-invoicing is mandatory for transactions between businesses and government organizations. The requirement for e-invoicing in business to government transactions materialized in November 2020.

These electronic invoices are designed in a structured and specific format. Businesses are expected to issue e-invoices in the approved format when supplying products to government authorities.

E-invoicing for business-to-government transactions aligns perfectly with the EU Directive 2014/55/EU. It helps improve efficiency, reduce paper consumption, and ensure compliance.

While e-invoicing is currently mandatory for government transactions, German authorities push to make it compulsory for all local business-to-business transactions. As such, businesses are required to transition from standard or traditional invoicing to e-invoicing.

In Germany, the transition period for businesses is in stages. The government provides transitional rules for businesses based on their size and profit.

Let’s examine some of these transitional rules:

By January 1, 2025, B2B businesses should be able to send and receive invoices electronically. Standard invoices and paper invoices will be allowed for B2C transactions.
In 2027, large businesses with over €800,000 profit/turnover will be mandated to issue e-invoices. SMEs may still use paper invoices. So, there's more time for small businesses to make the shift.
By 2028, businesses should have fully integrated e-invoicing into their ERP systems.

Who is required to issue e-invoicing in Germany?

The mandatory e-invoicing policy affects contracts with government authorities. As such, large enterprises or SMEs that supply goods or services to public contracting authorities are required to issue e-invoicing.

This mandate for electronic invoices affects contracts with authorities at the federal and state levels. State regions, such as Bavaria and North Rhine-Westphalia, have incorporated the requirement into state business contracts.

However, the electronic invoices issued must follow the XRechnug (XML file) accepted format.

Who is exempted from issuing e-invoicing in Germany?

Issuing electronic invoices is a requirement businesses must meet shortly. However, not all businesses are required to issue e-invoices. Businesses exempted from issuing e-invoices include:

Small-scale businesses or SMEs with contracts below €250 may be exempted from issuing electronic invoices.
For now, businesses engaged in non-governmental contracts are exempted. However, starting in January 2025, this exemption won’t cover B2B transactions.
Some German SMEs that export goods to non-EU countries may be exempted from issuing e-invoices. These transactions are often subject to international trade agreements or certain invoicing regulations.
Businesses that provide goods or services to direct consumers are also exempted. Some business-to-customer (B2C) companies are on a small-scale level. They don’t need the same structured process as business-to-business(B2B)or business-to-government (B2G) transactions.

How can German SMEs transition to e-invoicing?

Although integrating e-invoicing solutions into ERP systems may seem daunting, it can be seamless with the right support and understanding of the requirements.

That said, here are the important steps to take for a seamless transition:

Familiarize yourself with the legal requirements

Before initiating the transition process, make sure you understand the requirements. Do your due diligence and research legal requirements for e-invoices in your niche. That way, you can assess the e-invoicing mandates under which your business falls.

Implement the right e-invoicing solution

Regular electronic invoices do not pass the right e-invoice solution. The approved electronic invoices for German SMEs come in a different data format (specifically XRechnung or ZUGFeRD formats).

It’s important to choose e-invoice solutions/ software that matches the stipulated e-invoicing formats in Germany. Review existing systems (such as your Enterprise Resource Planning (ERP) systems) and ensure the solution you choose integrates seamlessly.

Provide employee training

It’s important to bring employees up to speed on the entire e-invoicing process. Provide training to educate employees and help them become well-versed in the process. The training should teach them the correct way to create, send, and archive electronic invoices.

A better option may be to invest in invoice solutions that automate the entire process. This would reduce administrative tasks for your employees and help in enhancing efficiency.

Test electronic invoice software before implementing

It's helpful to test your chosen solution before implementing e-invoicing. Testing solutions with a few transactions will uncover integration and compliance issues. This will give you enough time to adjust. And you can avoid incurring penalties from tax authorities because of compliance issues.

Collaborate with a reliable e-invoice solutions provider

Over time, rules and regulations can be reformed or changed. Failure to adjust quickly to the new rules may incur penalties. The service provider you partner with can help you comply with updated regulations without any disruption. That way, you won't have to worry about missing out on new laws or regulations.

What are the requirements for e-invoicing in Germany?

Germany provides specific legal and technical requirements for e-invoicing. Adhering to these requirements. Adhering to these requirements ensures e-invoices meet all regulatory standards.

It also ensures businesses and government authorities can process it easily. Here are the requirements for the electronic processing of invoices:

Legal compliance

In Germany, there are specified laws and regulations for reporting and handling electronic invoices. Your business must format and report invoice data according to the tax regulations in Germany.

Complying with relevant data protection laws is important when handling invoice data. Compliance is critical in securing personal and financial data when it is transmitted or stored.

Structured data format

All electronic invoices must be submitted in a specified structural format. Submitting e-invoices based on the structured electronic format allows invoicing systems to process them easily.

The most common e-invoice format in Germany is XRechnug. XRechnug is an XML file format designed for transactions involving public contracting authorities. This format allows businesses and service providers to exchange financial information with the government efficiently.

Besides XML formats, ZUGFeRD is another supported format. ZUGFeRD is also a great option for B2B transactions.

ZUGFeRD file formats combine structured data with human-readable data. The invoice software provider you choose should be able to generate invoices in the required formats.

Authentication requirements

Businesses may need to use digital signatures to verify the authenticity of generated invoices. Digital signatures assent to the integrity of the invoice document, helping the sender and recipient trust the authenticity of the document.

Electronic documents are vulnerable, so utilizing digital signatures helps to prevent fraudulent activities. As an established business in Germany, the integrity of your e-invoice is important. It’s even more important in cases of large billion-dollar contracts.

Archiving requirements

In Germany, e-invoicing mandates require that invoices be archived for at least 10 years. The invoices should be stored properly to ensure integrity and accessibility. You also want to ensure that the invoice data can be easily recovered for tax reviews or audits.

How to issue an e-invoice in Germany

Issuing or sending electronic invoices involves several steps. The following steps will help you issue electronic invoices correctly:

1. Generate the invoice

The invoice issuer or business must first generate the e-invoice. Make sure to use a compliant e-invoicing software solution. Run a quick check to ensure all mandatory details are included. These details include tax information, invoice number, payment terms, and other legal information.

2. Convert to the required structured format

When you’re done generating the invoice, convert it into the required electronic format (either XRechnug or ZUGFeRD). Converting is easy if you're using a platform with automated processing systems.

When sending out invoices, ensure they align with the required structured format. That way, the recipient’s system can process invoice data automatically.

3. Submit the invoice

You can submit Invoices through a secure portal, an electronic data interchange system (EDI). EDI allows an automatic submission without human intervention.

On the other hand, a secured portal (provided by the government or large enterprises) may require a manual submission. For foreign transactions, you can submit through the PEPPOL (pan-European Public Procurement On-Line) network. It makes cross-border invoice transmission seamless.

However, developing a PEPPOL-ready e-invoicing from scratch is time-consuming. Storecove’s PEPPOL-ready solution helps you avoid the extensive time and resource investment needed to develop a PEPPOL system from scratch.

4. Archive the invoice

The process of issuing e-invoices is not complete without archiving them. After submitting, archiving electronic invoices is the next step. The retention period for invoices in Germany is 10 years. It's important to invest in platforms that securely archive invoices for the entire retention period.

What are the benefits of e-invoicing for German SMEs?

Transitioning from regular PDF format invoices to e-invoicing comes with numerous benefits. E-invoicing offers a cost-effective way to streamline financial operations for small and medium-sized enterprises. But that's not all! Let’s examine more benefits businesses can enjoy from e-invoicing.

Saves time and costs: Electronic invoices significantly reduce paper consumption, which in turn reduces printing and postage costs. They also shave off the time and expense spent on manual invoice handling.
Improves cash flow management: The processing times for e-invoices are faster than those of paper invoices. Electronically generated invoices lead to a faster payment cycle, which in turn leads to increased cash flow management. This is especially beneficial for SMEs because it helps them maintain liquidity.
Streamlines administrative efforts: Generating automatic e-invoices means you can free up valuable time. This helps your team/employees focus on other important business functions. Beyond streamlining business operations, e-invoices help to avoid human errors.
Reduces carbon footprints: E-invoicing minimizes paper consumption and transportation. This helps to reduce your carbon footprint in the environment. As such, electronic invoicing is an eco-friendly option that enhances your environmental sustainability efforts.
Enhances data protection and security: Unlike paper invoices, processing invoices electronically is safer. It’s easy to retrieve documents from previous transactions. This is especially useful for businesses when a data breach happens or during tax reviews.
Better compliance with legal regulations: Investing in a reliable e-invoicing solution ensures compliance with e-invoicing mandates. In other words, e-invoicing guarantees compliance with regularly updated requirements issued by tax authorities. That way, your business can boycott penalties and disruptions in operations.

Takeaway: Make a seamless switch to e-invoicing in Germany with Storecove

In this age of digital transformation, switching from paper to e-invoices is a vital step for SMEs. Federal authorities in Germany are set to introduce strict e-invoicing mandates starting in January 2025. As such, businesses in Germany are encouraged to transition to electronically processed invoices.

Switching to paperless invoice methods can be a complex and overwhelming process. Nonetheless, its numerous benefits outweigh the complexities.

Federal authorities provide lenient transition rules that extend total integration to 2028. A timely transition ensures you stay ahead of compliance deadlines. It also helps you take advantage of growth opportunities in the future.

Keep in mind that complying with legal requirements for electronic invoices is non-negotiable. While keeping up with requirements may seem overwhelming, partnering with a reliable e-invoicing solution makes it easier.

Storecove provides e-invoicing solutions tailored to meet the needs of your existing ERP systems. It also automates the entire process of sending invoices to local businesses.

That way, you can reduce administrative workloads and help your team focus on needle-moving operations. Ready to enjoy a seamless transition to e-invoicing? Schedule a demo with one of our e-invoicing experts today!

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