How Electronic Invoicing Works: Stages of E-Invoicing

Paper-based invoicing is a pain—and it poses a risk as well. According to the Association of Certified Fraud Examiners, the median loss for financial statement fraud is $766,000, with 78% of the crimes worldwide involving the creation or manipulation of physical documents. Beyond the fraud risk, important financial documents can get lost in transit, delaying your payment processing timeline by days or even weeks.

Today’s electronic invoicing (or e-invoicing) allows you to scrap the stacks of paper and manual data entry, providing a secure, centralized system with automated validation and a clear audit trail. Here’s how to implement e-invoicing and achieve better efficiency across your business operations.

What is electronic invoicing?

Electronic invoicing is the process of creating, sending, and storing invoices in an electronic format, with many platforms also enabling users to send and receive payments. Unlike a scanned paper invoice or PDF sent via email, e-invoices use a structured data format—such as electronic data interchange (EDI), extensible markup language (XML), or universal business language (UBL)—so the invoice can be read and processed automatically, even across different accounting systems.

This streamlines the entire invoicing process and simplifies invoicing solutions for sellers, which helps create more predictable cash flow management. By digitizing invoicing and payments on a single platform, merchants maintain a consistent record of business transactions from start to finish.

Types of electronic invoicing solutions

There are two broad umbrellas of e-invoicing: software-based and service-based. Various e-invoicing solutions exist within these to fit businesses of all sizes, from small businesses to large enterprises that deal with complex accounts payable processes. Here are the main differences:

• Software-based. With a software-based model, you buy or subscribe to a software platform—like Zoho or QuickBooks—and manage the e-invoicing process internally. You control every step, using the software’s features to create, send, and track your invoices. 
• Service-based. A service-based model outsources the entire process. You send your standard invoice data—often just a PDF or a data file—to the service provider, who then acts as an intermediary. The service handles all of the technical work, including converting the data into a structured format, ensuring compliance, and securely transmitting it to the recipient’s system.

The challenge for many ecommerce merchants has been managing payments and invoices across multiple platforms, but today’s leading platforms are solving this problem with integrated tools. Shopify, for example, offers both a free online invoice generator and various third-party integrations, such as QuickBooks and Invoice Wizard.

Transitioning to electronic invoicing

The transition to electronic invoicing requires a few key steps to ensure a smooth implementation. All businesses, from small to enterprise, will face some degree of growing pains—but the larger-scale the transition, the greater the focus needs to be on change management, system integrations, and global compliance. Here are some key areas you can focus on to make the transition as simple as possible:

• Integration. Find a solution that seamlessly connects with your existing accounting software to maintain fluid data flow and avoid a complex setup.
• Compliance. Verify that your chosen platform can handle your specific tax and regulatory requirements, especially if you have international clients.
• User experience. Be more likely to get buy-in by finding a solution that is user-friendly and supports an easier onboarding process for your team. 

6 stages of the electronic invoicing process

1. Invoice creation
2. Secure transmission
3. Data validation
4. Automated matching
5. Approval and payment
6. Status updates and archiving

Specific elements vary depending on the e-invoicing solutions used, but most accounting software includes these phases:

1. Invoice creation

The seller’s invoicing software creates a standardized, machine-readable invoice file containing all the necessary information—such as customer details, line items, and billable amounts—in a data format ready for electronic transmission.

2. Secure transmission

The seller can then send digital invoices from their accounting software to a dedicated e-invoicing platform, which securely transmits the file directly to the recipient’s system. Encrypted file transfers, which are often used for this step, provide a stronger level of security than sending invoice attachments via email—particularly when protecting against security breaches.

3. Data validation

Once the seller sends the invoice, the buyer’s electronic invoicing system automatically receives and validates it. Since the invoice will be in a machine-readable structured data format, the software instantly checks data integrity and accuracy, even if the buyer and seller use different e-invoicing platforms. Data validation typically includes verifying the seller’s tax ID, ensuring all required fields are filled in, and checking for additional errors.

Software is typically designed to meet local and national tax compliance requirements, which many solutions automatically update to reflect new laws. For international payments, these systems usually connect to global networks that handle cross-border regulations, helping ensure the invoice meets the unique standards of the recipient’s country.

AI and machine learning often power this process, enabling the system to flag potential fraud. This advanced technology also helps prevent financial and legal consequences by automatically identifying issues that could lead to costly problems—such as overpayments, audit failures, compliance violations, or triggers for significant governmental fines.

4. Automated matching

This step ensures transactional accuracy in the accounts payable process. The system automatically matches the received invoice against the buyer’s corresponding business documents, such as purchase orders and receiving slips. This automated check, often referred to as three-way matching, verifies that the invoice details, such as the quantity and cost of services or goods, align with the original purchase orders and goods received.

5. Approval and payment

After the invoice is validated and matched, it moves through an automated approval workflow. You can typically configure the system to route the invoice to a designated team member for review and authorization. In many cases, the system can also automatically approve it based on pre-defined business rules. After approval, the invoice is officially recorded in the buyer’s accounting ledger and scheduled for payment.

This automated workflow directly improves your cash flow by removing payment friction. An e-invoice arrives and can be paid instantly online, accelerating your payment collection even with tight payment windows.

6. Status updates and archiving

Throughout the entire process, e-invoicing software tracks the invoice status in real time, providing full transparency to both the seller and the buyer.

These status updates give you visibility into where an invoice stands at any given time. For business owners, this transparency transforms cash flow management. You can see when an invoice has been sent, received, and approved, and most importantly, you can quickly identify which payments are delayed or past due. This real-time tracking empowers you to follow up on late payments and resolve issues before they impact your business.

Once the buyer has completed the payment, the invoice is then automatically and securely archived by both the seller and the buyer. Because the invoice is a structured data file, it is easily searchable, letting you quickly retrieve specific invoices for audits or historical reference. This digital storage also guarantees that a complete and accurate record of the transaction is preserved and protected.

Electronic invoicing challenges

• Implementation costs
• Vendor onboarding
• Change management

Businesses transitioning from manual invoice processing should prepare for both technical and organizational challenges. Despite these initial hurdles, electronic invoicing can modernize key components of your company and help achieve overall long-term benefits. Here are some potential setbacks you may encounter and how to overcome them:

Implementation costs

One of the biggest barriers when it comes to adopting e-invoicing solutions can be the upfront cost. This includes the expense of acquiring e-invoicing software, the technical resources needed to integrate it with existing enterprise resource planning (ERP) or accounting systems, and the cost of training staff. For companies that relied on manual processes for years, the shift can seem overwhelming. Without a proper plan, integrating new technology can lead to project delays and budget overruns.

Start with a phased approach. Instead of full-scale implementation, consider launching a limited pilot program. This lets your accounts payable team work through technical issues and build a strong business case before a full-scale rollout. Many e-invoicing providers also offer cloud-based solutions, which have become the industry standard for secure and simple implementation. This model reduces upfront infrastructure costs and simplifies integrations by enabling efficient data exchange between different business systems.

Vendor onboarding

While your internal systems may be ready, your suppliers might not be. Many suppliers still use manual invoicing or email PDFs, which are more susceptible to fraudulent interception and require manual data entry. This creates a dual system where your team must manage paper and PDF invoices alongside electronic ones, reintroducing the very inefficiencies and security risks that a fully automated solution is meant to solve.

Modern e-invoicing solutions often include supplier onboarding tools, which range from self-service portals where vendors can easily submit digital invoices to services that automatically convert different invoice formats into what you need. Joining a global e-invoicing network can dramatically accelerate onboarding. This network is a secure infrastructure that connects different systems, similar to how email works seamlessly across different providers—which is why someone using Gmail can still communicate with someone on Outlook.

Once your business syncs to the network, you can instantly connect with any other trading partner already on the network. This eliminates the need for a separate, time-consuming technical setup for each new partner, enabling you to start sending and receiving invoices almost immediately.

Change management

Gaining buy-in from internal teams can be a major challenge. Employees comfortable with manual invoice processing may resist learning a new system, fearing the disruption of their established workflows.

Overcoming external supplier resistance can be another hurdle. Vendors may be reluctant to stop using their traditional invoicing methods or may lack the resources to switch to a new electronic format. This could create a dual system where your team still has to manage both paper and digital invoices, defeating the purpose of a fully automated solution.

To drive adoption, clearly communicate the benefits of the new system, such as faster payments, reduced invoice errors, and better visibility into invoice status. Offering training and dedicated support to the accounts payable team can address their concerns. For vendors, easy-to-use portals—dedicated web interfaces for submitting and tracking invoices—or early adoption incentives can encourage businesses to make the switch to an automated invoicing process.