The Future of E-Invoicing in the U.S.: Trends and Regulations Shaping the Landscape

The USA is taking slow but progressive steps towards digitizing invoicing. However, the government faces a few challenges, including tax complexities and a lack of centralized authority.

These challenges have made electronic invoicing optional for B2B financial transactions at the federal and state level.

However, the US government’s Paperwork Elimination Act mandates that all federal agencies and their suppliers must have an option to submit an electronic invoice.

Implementing a nationwide e-invoicing mandate is not yet possible since most states do not have a VAT system or input tax credit mechanisms.

The joint statement issued on 8 April 2024 by the government with the EU is one of the most recent aims to improve interoperability by increasing trade cooperation, payments, customs, fraud prevention, and reducing operational costs.

In this post, we’ll explore electronic invoicing in the USA and discuss the government’s efforts to enhance alignment and interoperability. We’ll also elaborate on the trends and regulations shaping the future of e-invoicing in the USA.

Is electronic invoicing mandatory in the USA?

E-invoicing is not yet mandatory in the USA, either on a federal or state level. For this reason, many businesses have not yet adopted it, even though it has existed for a while.

Here are reasons why the USA has not mandated e-invoicing:

Lack of a nationwide mandate
No federal VAT or GST system for formal tax invoice regulations

What is the current state of e-invoicing in the USA?

The US government is steadily working towards implementing electronic invoicing by persuading individual states to adopt a cohesive framework for cross-border activities.

With over 250 e-invoicing providers using more than 15 formats, the e-invoicing environment is highly intricate.

The BPC (Business Payments Coalition) launched a Market Pilot to build, test, and implement a virtual network that will allow businesses in the USA to issue and receive e-invoices among each other.

The pilot phase, which began in 2023, establishes a secure e-invoice delivery framework between providers. Like PEPPOL, it uses a four-corner model, meaning business owners need an access point provider to access the network.

The beginning of this phase marked a significant shift towards e-invoicing in the country. It included several private companies and government agencies, including the Department of Defense and the Environmental Protection Agency.

The Federal Reserve Financial Services and the Business Payments Coalition (BPC) collaborate to deliver and process supporting information for B2B payments.

Those participating in the BPC E-invoice Exchange Market Pilot have established the Digital Business Networks Alliance (DBNAlliance) to oversee the innovative electronic exchange network.

Business-to-government (B2G) e-invoicing is gaining traction as the Federal Reserve and the Business Payments Coalition (BPC) work towards establishing a standardized e-invoicing model.

What are the trends and regulations shaping the future of e-invoicing in the USA?

The US government is slowly but steadily moving towards e-invoicing through a common platform across all states. Let’s discuss some of the steps taken to ensure the country achieves this goal:

2017

In 2017, The U.S. House of Representatives introduced the "Promoting the Launch of Blockchain Applications for Smart Government Act.”

This act seeks to use blockchain technology to help streamline government operations, including invoicing processes.

2018

California passed a law requiring all state contractors to issue e-invoices through the state’s procurement site, Cal eProcure.

2020

Due to the COVID-19 pandemic, e-invoicing adoption was accelerated in the USA. Most businesses transitioned to e-invoicing to reduce manual processes and adhere to the social distancing guidelines.

2023

In 2023, the government took a massive step towards e-invoicing mandates by introducing the pilot phase of e-invoicing. Establishing the Digital Business Networks Alliance (DBNAlliance) to oversee the electronic exchange network also significantly shaped the future of e-invoicing in the US.

Over time, more businesses continue adopting various e-invoicing solutions due to their benefits. Some states and federal government agencies also mandated e-invoicing for government agencies

The government also adopted standardized formats to facilitate the integration of electronic invoicing systems with existing payment and accounting systems. These included:

EDI

EDI, or electronic data interchange, is a set of guidelines governing the content and format of various e-documents, including invoices, orders, and order responses.

EDI documents look like a random mix of letters and symbols, but they conform to strict rules. They are based on four principles: syntax, codes, message designs, and identification values.

XML-based Universal Business Language (UBL)

XML stands for eXtensible Markup Language, a format readable by humans and machines. Since EDIs must be transmitted through a private network, they can be more expensive.

This makes XML a more popular option for e-invoicing.

Importance of e-invoicing for businesses in the USA

While most companies have yet to adopt e-invoicing, it can significantly enhance various business processes.

Let us look at some of the ways businesses in the USA can benefit from e-invoicing:

Gives you a competitive advantage

The business world is evolving rapidly, and maintaining a competitive edge gives your business an advantage. E-invoicing helps your business’s innovation strategies and enhances operational efficiency.

It provides additional value to your customers, making retaining and attracting new customers easier.

Improves relationships between businesses and customers

Having a streamlined payment method that is easy to understand enhances the relationship between buyers and suppliers. Generating accurate invoices and delivering good customer care services strengthens customer loyalty and retention.

E-invoicing is also transparent, granting transacting parties access to documents anytime.

Reduces invoice processing costs

Generating and issuing paper invoices can cost an average of $15 per invoice. You have to consider the material, labor, printing and postage costs.

Automating the invoicing process eliminates these costs, making sending and receiving invoices much cheaper.

Your accounting team saves time on double entries, reconciliation with or without purchase orders, and errors. This allows them to focus on the company’s more strategic tasks, increasing productivity.

Enhances accessibility

The US government has made e-invoicing available to business owners, even though it is not yet mandatory. Unlike the heavy folders in the accounts office containing invoices dating back several years, digital invoices are easy to access.

Digital e-invoicing platforms make it easy for business owners to search and access documents without being at a physical storage base.

Electronic invoices are classified and stored in a specific order, making them easy to access. The transacting parties can also store the documents in various formats, including HTML, PDF, or JPG. EDI and XML are only mandatory during e-invoice issuance.

Takes advantage of payment discounts

Most businesses offer payment discounts for some products for a limited time. The sooner you generate and issue your invoice, the better your chance of taking advantage of these discounts.

Due to e-invoicing automation, you can generate and issue invoices immediately after purchase.

Other businesses also offer early payment discounts, meaning the buyer pays less if they make full payment before the due date. Promptly sending and receiving e-invoices gives business owners better chances of receiving timely payment discounts.

Improves security and protection against fraud

Modern e-invoicing software creates authentication access using credentials to encrypt any mailing. This guarantees a safe exchange and protection of financial data against document losses or third-party intrusions.

Fraud and document forgery are prevalent cases among businesses using paper e-invoicing. It is easy to forge a document requesting payment for goods not delivered and issue it to a buyer.

If the buyer does not have a way to confirm if the document is valid, they risk making payments to fraudsters. Electronic invoices often have an unrepeatable digital signature, seal, or certificate to verify invoices.

The digital signature may be a QR code generated by the seller’s e-invoicing system. If the transacting parties use a common platform, they can use the code to validate and monitor the e-invoice.

Faster payments for improved cash flow

Electronic invoices can be created through automation software, allowing you to issue a document to the buyer immediately to request payment. This reduces delays since the buyer receives the data directly after purchasing.

Since there are no delays in sending invoices, payments can be made promptly, improving the suppliers’ cash flow. This helps them estimate their annual budgets and plan accordingly.

Improved cash flow leads to better management of funds and optimizing predictability of working capital requirements.

Eco-friendly

Most businesses aim for sustainable and eco-friendly practices in today’s environmentally conscious world. Traditional paper invoicing methods significantly contribute to deforestation and carbon emissions from mailing, printing, and paper invoice storage.

E-invoicing can eliminate the need for paper in offices, making businesses more environmentally friendly. This is not only beneficial to the environment but also helps companies to align with sustainability goals.

Minimizes disputes and rejected invoices

When you automate your invoicing process, there are minimal chances of making mistakes, reducing invoice rejections and disputes.

However, for your ERP to be effective, it has to be integrated with a compatible e-invoice generator. Your software should be able to extract customer information and transfer it accurately to the invoice’s mandatory entry fields.

Takeaway: Get ahead of e-invoicing evolution in the USA

Mandatory e-invoicing in the US is inevitable, with the government steadily progressing toward this goal. The launch of the pilot phase in 2023 signals significant changes ahead for businesses.

While e-invoicing is not yet mandatory, it offers numerous advantages for businesses. It improves cash flow and makes tax compliance more manageable. Adopting e-invoicing in its early stages can give your business a competitive edge.

At Storecove, we can connect your business to the US exchange network and help you join thousands of companies adopting electronic invoicing. Contact us today to get started!

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