Invoice Compliance Best Practices and Checklist:
Invoice compliance is a challenging task for organizations of all sizes, industries, and geographies.
While organizations have moved toward paperless, e-invoicing systems to handle accounts payable invoices smartly and efficiently, they still encounter severe problems when they form partnerships with new vendors located overseas.
Accounting for payables requires observing local fiscal, commercial, and legal regulations. The failure to comply with local laws and taxes can result in additional costs for the company.
Businesses have to contend with a large array of legal and tax compliance issues due to the variety of tax laws, specific invoice receipt, handling, and archiving regulations from different countries, and unique invoice formats.
This article explains the major points to consider when determining whether or not an invoice is valid, how e-invoices need to be legal, and why companies need specialized invoice compliance tools.
What is a valid invoice?
Generally, an invoice represents the written receipt of goods from the seller to the buyer. The reason for invoices is requesting payment from buyers on respective due dates.
A valid invoice must include all the details required by the local regulatory laws. Additionally, a valid invoice must comply with country-specific sales tax laws and regulations. Tax is calculated, collected, and remitted based on the value of the goods and services mentioned in an invoice.
What information must appear on an invoice?
Although each country may have its invoice requirements, a typical invoice should possess the following critical details:
- Top of the invoice is clearly marked “invoice”
- Business name, address, and contact details
- Client name, address, and contact details
- Address of Project (if it’s not as business address)
- Invoice number
- Invoice date
- Payment terms and due date
- Description of services rendered or products delivered
- Quantity of products or services
- Amount due (in local currency)
- Taxes, if applicable
- Payment options, such as checks, credit cards, or ECH
In some nations, invoice numbers are strictly regulated, whereas in others, such as the United States, the requirements are somewhat more flexible.
Invoices can be assigned numbers chronologically or businesses can choose unique identifiers for each customer, product, or region. For filing GST or sales tax returns and auditing purposes, it is helpful to assign each invoice a unique number.
What is an electronic invoice?
For many years, businesses have sent PDF invoices to their customers by email. Essentially, however, it is the same as sending a paper invoice. To initiate the payment, the buying organization must receive the invoice, forward it to various departments for cross-verification, and then initiate the payment. The whole process is time-consuming and prone to error.
Additionally, overburdened accounts payable departments might approve unauthorized invoices. A few large companies even follow a policy of paying all invoices up to a certain value without verification during periods of heavy workload. This leaves them open to invoice fraud.
By e-invoicing, suppliers and buyers can exchange invoices in a standardized format. An e-invoice contains information about a transaction in a structured format. On receiving the invoice, the buying organization can automatically import it into its accounts payable system.
Using e-invoicing, the accounts payable department can process invoices quickly and accurately. The transparent process ensures monitoring, and prevents the approval of non-verified invoices.
E-invoicing is also an effective way to combat invoice fraud. In addition, it helps to ensure the vendor approval, duplicate invoices, and item duplication.
What legal requirements are there for e-invoices?
Whether sent in real-time or via EDI transfer, electronic invoices must comply with all applicable laws and regulations. To ensure that vendor e-invoices are compliant, organizations should include the following details in addition to those mentioned above:
Origin of invoices:
The seller must send the invoice, not a fraudster. This can be done through authentication and identification protocols or certificates of authenticity.
AP must ensure that no changes have been made to the details in the document after it has been issued. Data tampering can be detected through advanced digital signatures. When digitally-signed data is altered, it invalidates the signature.
E-invoices exchanged in structured formats (XML or UBL) should be accompanied by a readable document for the duration of the document’s validity. Additionally, the e-invoice must be sent in a format that is acceptable in the buyer’s country. For instance, An Australian buyer must receive invoices in Peppol format if an organization in the US sends an invoice to them.
Tax inspectors and auditors in each country should have access to original e-invoices. Saudi Arabia, for instance, requires that e-invoicing solutions enable companies to export invoices and associated notes to an offline archive.
How can an efficient e-invoicing solution benefit your business?
Invoice compliance solutions such as e-invoicing software Saudi Arabia, today offer more than just multicurrency and multi-language capabilities. It is up-to-date on the regulatory frameworks for multiple countries’ e-invoicing, and can easily adapt to any new compliance dilemma.
Quicker processing of invoices:
An efficient e-invoicing solution allows an organization to efficiently manage hundreds and thousands of vendor invoices with minimal errors and omissions. It also ensures big data management and identifies and verifies each transaction in real-time.
The right invoice compliance solution ensures appropriate controls and eliminates manual processes that eat up valuable accounts payable staff time, increase frustrations, or create risks. The organization is then able to allocate valuable resources to obtaining insights and improving procurement processes.
Additionally, a good invoice compliance solution will also enable Accounts Payable to handle exceptions more efficiently.
A systematic approach:
Invoice compliance solutions receive invoice data in structured form and map it to the fields necessary for accounting according to country-specific rules. Afterward, it verifies digital signatures cryptographically to ensure data integrity, and then approves and processes the payment.
A three-way match and approval process:
Invoice compliance solutions use 3-way matching to detect discrepancies in 3 important documents of the purchasing process, the purchase order, the invoice, and the order receipt, and cross-verify information such as the number of units, price per unit, and total order cost.
It also prevents payment of invoices having errors such as an inaccurate quantity, an incorrect price, or damaged goods. In addition to preventing overpayment or incorrect payments, it can reduce operational costs by up to 50%.
Compliance with the law:
Any effective invoice compliance solution always complies with all trade and legal regulations applicable to the buyer and the supplier. Additionally, it lowers the cost associated with global invoice compliance.
Automating the archiving process:
A good invoice compliance solution also simplifies and streamlines the archiving process. The system allows an organization to customize rules and automate digital organization processes to systematically store invoices and other documents. This helps to reduce the audit time in deep inspections and to save financial costs.
Protocols for advanced security:
A reliable invoice compliance solution will take security seriously and integrate with leading single sign-on providers to prevent possible data breaches. It’s critical to remember that an inefficient invoice compliance solution can lead to the loss of sensitive data (e.g., customer’s personal information), jeopardizing the organization’s reputation.
E-invoicing is now a global business requirement, and it now become mandatory in Saudi Arabia. Since the e-invoicing system in Saudi Arabia is in its second implementation phase. It is the right time for those who have still not adopted the professional ZATCA compliant e-invoicing software.
Absolute Solutions is the best IT Company in Riyadh, Saudi Arabia that offers e-invoicing software for Saudi Arabia. Their e-invoicing application is 100% compliant with all ZATCA requirements and it is available in the three subscription models. That makes it the most viable e-invoicing software for any type of business in Saudi Arabia.