E-invoices are dead, long live e-invoices!

E-invoices celebrate their first minor anniversary – submitting invoices to the public sector in this format has been obligatory for five years, while technical support for e-invoicing has existed on the market for more than 10 years. But the hope that the private sector would organically embrace the state’s role model has not come to fruition.

The draft amendments to the Accounting Act, introduced on 6 May and will reach its second reading by the Parliament on 11 September (no. 428 SE) are aimed at removing the obstacles to the use of e-invoices in the private sector and encouraging the adoption of the European standard on e-invoicing.[1]

According to an Ernst & Young Baltic study conducted in 2021, the main obstacle facing the adoption of e-invoices were the e-invoicing double standard (Estonia’s own standard vs. the European standard) and the coercive nature of implementation of e-invoices, which led to psychological resistance. Microenterprises and small businesses often were plagued by low awareness of the possibilities of invoices, the selection of the right operator service and software configurations.[2]

Don’t we know how to count money?

But let’s start from the scratch. Why is sending and receiving of e-invoices been neglected and why has the private sector’s interest been lukewarm? Statistics show that e-invoicing is cheaper than sending invoices on paper or as a PDF file. So what’s the matter? Don’t people know how to count money?

Nearly every quality accounting software package developed for the Estonian market supports e-invoicing. So for accountants, the reason is definitely not that it’s harder to send invoices than emailing good old PDF invoices. 

The root of the problem, I think, lies in the capability to receive e-invoices. In other words, there hasn’t been enough outreach to educate people about the operators for receiving e-invoice, their contract terms, software requirements and price of service. The entrepreneur has to do this work themselves or call on an accountant to find the solution that’s right for them. Today there is a wide selection of operators: some who will offer a certain number of e-invoices for free and those who provide a variety of additional functions. The question comes down to understanding what is actually needed. 

The other reasons in my opinion is that various fears get in the way of adopting e-invoicing – i.e., business people don’t know whether the counterparty can receive e-invoices, or whether the counterparty even wants e-invoices; maybe there will be too much scrutiny about what is being purchased and why; the Tax and Customs Board is getting access to too much information, and so on. 

I believe the government has done too little to dispel such concerns. Solely amending a law to make it obligatory to start sending e-invoices if the buyer of the goods or service so demands and has registered with the Commercial Register as an e-invoice recipients will not dispel fears and get more e-invoices into circulation on the market. 

Adding the planned change in connection to submission of VAT returns where instead of the current form, the source data for the calculation of VAT must be declared to the tax authority and I understand how people in business feel.[3]

What will change on 1 January 2025?

Under the proposed amendments to the Accounting Act, a company itself, provided that it has a contract with a service provider, can file an application to the Commercial Register to add an e-service processing service provider to its registry card.

Under the current rules, only an e-invoice operator can initiate the making of a change on the registry card, not the company itself. The reason behind the amendment is to allow foreign e-invoice operators’ service to be used as well and to thereby simplify the registration process. 

Estonia’s own technical standard requirements for e-invoices will be revoked in the Accounting Act as well, since this is already covered by the European e-invoice standard. 

The most important amendment pertains to buyers who have already registered as e-invoice recipients. They can now demand vendors to e-invoice for paying for goods or services they buy. Note that the buyer has the right, not the obligation to make that demand. In other words, nothing keeps companies who want to continue the old way from doing so. But the ones who feel that e-invoices are beneficial can do so.

The alternative recommendation that we’ve read and heard in the media is to agree on the rules for submission of invoices in the contract, to avoid any disputes and confusion.[4]

The Estonian Chamber of Commerce and Industry raised a question during the endorsement round for the amendments: In a situation where the buyer demands an e-invoice, but the seller sends the invoice in PDF form, can the buyer refuse to pay? I can’t agree with the Ministry of Finance position that this constitutes a pretext to not pay for goods or services and I don’t recommend that businesses go this path. 

Besides, the legislation sets out requirements for the format of e-invoices. An e-invoice is in the required format if it conforms to the European e-invoicing standard. However, there will still be the option of agreeing on another invoice format. 

Interested in making the switch to e-invoicing? 

If a company has its accounting in some accounting program developed for the Estonian market, there will probably be no problem sending and receiving e-invoices – generally, the interface can be activated with a few keystrokes (such as in Merit Tarkvara, Acclouding, Directo or Standard Books). Yes, there is usually a fee for the service. But it shouldn’t be forgotten that e-invoicing also reduces the data entry work and other time expenditure for the accountant. The best-known e-invoicing operators in Estonia are Telema, Finbite, e-arveldaja, Unifiedpost Group and Envoice. So there are plenty of service providers and more are expected to enter the picture. 

Smart software programs can also identify through the Commercial Register interface whether a client is capable of receiving e-invoices, doing away with the worry about whether customers can be quickly and conveniently invoiced. 

Yet it will certainly take some getting used to invoices not landing in an inbox at the start of the month but directly into software. That means having to think about who accepts invoices and how. There are many options, like for example giving certain individuals the right of approval in the software or e-invoicing operator environment, or for accepting payments at a bank. Those who do their own accounting will surely stand to free up time by moving to e-invoicing – no more having to manually key data from PDFs into the electronic ledger. By outsourcing accounting service, diligent accountants can easily set up an invoice approval list and will still have an overview of the company’s purchases. 

It can’t be denied that e-invoicing solutions aren’t yet ideal and e-invoice operators have room for improvement – be it additional documents accompanying invoices, recurring e-invoices or the greater amount of information on automatically pre-filled fields. Yet e-invoices are undoubtedly a trend worth adopting, because it allows information to be rapidly and conveniently streamlined into one channel, giving more time to focus on analysis or visualization of data. It shouldn’t be forgotten that e-invoicing also speeds up the flow of information. 

I recommend that small businesses and self-employed who don’t feel at home in accounting software call on a good accountant who can set up the basic configurations in programme or help them choose their e-invoicing operator. This is of course if the business partners are ones who require e-invoicing. 

To sum up, it will take significantly more explaining and instructions why and how the e-invoicing system works and how to get it to work. Accounting software packages include interfaces with the largest service providers; what is necessary now is for businesses to want to activate them.

Adopting e-invoicing must be as simple a process as possible even for the non-IT savvy, and companies should retain the option of choosing their invoice format, particularly if they do business outside Estonia.