Self-billing in Invoicing: The Buyer Takes Charge

Today, suppliers are not the only entities responsible for managing the invoicing process. With the advent of self-billing, buyers now have the tools to take control, crafting invoices themselves and streamlining transactions. This method isn't just a minor tweak, it’s a game-changer that streamlines processes and enhances accuracy.

Keep reading to explore:

• What is self-billing and its reversal of traditional invoicing
• Key scenarios where self-billing is most beneficial
• Potential risks and advantages of self-billing
• Examples of industries that gain from self-billing

What is self-billing?

In the traditional e-invoicing process, the supplier issues an invoice to the buyer detailing the goods or services provided. However, in self-billing, the roles are reversed. Here, the buyer takes the initiative and creates the invoice themselves, sending it to the supplier along with the corresponding payment.

This approach is typically used in specific scenarios, such as:

• When the buyer has better knowledge of transaction details: This might occur with recurring charges or when the exact quantity of goods received is determined upon arrival.
• For transactions with foreign suppliers: In some cases, regulations require the buyer to handle e-invoicing for foreign suppliers.

While it streamlines the process for the supplier, self-billing requires a clear agreement between both parties to ensure accuracy and compliance with tax regulations.

What is a self-billing invoice?

A self-billing invoice is a document created by the buyer detailing the goods or services received from the supplier, just like a standard invoice. However, unlike a traditional invoice, where the supplier issues it, the self-billing invoice is prepared by the buyer and sent to the supplier for approval (often alongside the payment).

This invoice functions similarly to a regular e-invoice, containing all the essential information like:

• Supplier and buyer details
• Description of goods or services provided
• Quantity and price
• Applicable taxes (if any)
• Total amount due

The key difference lies in who generates the document. A self-billing invoice clearly indicates that it was prepared by the buyer through a special mention (e.g., "self-billing invoice") to avoid confusion.

Five main benefits of self-billed invoices

1. Increased efficiency: By eliminating the need for the supplier to create invoices, self-billing saves time and reduces administrative burdens for both parties. This translates to less time spent on invoice management.
2. Improved accuracy: Since self-billing invoices are based on pre-approved details like timesheets and expenses, they are less prone to errors in rates, quantities, or dates. This reduces the risk of discrepancies and disputes.
3. Faster payments: With approved timesheets triggering the creation of self-billing invoices, buyers can expedite payments to suppliers, improving cash flow for the supplier.
4. Streamlined financial management: Self-billing invoices adhere to a format pre-approved by the customer. This consistency simplifies record-keeping and financial administration for the buyer.
5. Reduced costs: The overall efficiency gains from self-billing can translate to cost savings for both parties. Less administrative work means less manpower needed, and faster payments can potentially reduce late fees.

Five risks involved with self-billing

1. Errors and inaccuracy: Self-billing relies heavily on accurate data input from the buyer. Mistakes in quantities, rates, or tax calculations can occur if proper controls aren't in place. This can lead to disputes and financial losses.
2. Compliance issues: Tax regulations surrounding self-billing can be complex and vary by region. Ensuring global compliance is crucial, as failure to adhere to these regulations can result in penalties or even invalidate the self-billing process.
3. Weak audit trail: If self-billing is done manually, maintaining a clear audit trail can be challenging. This can make it difficult to reconstruct transactions or prove compliance during an audit.
4. Potential for abuse: In situations where internal controls are weak, self-billing can be misused for fraudulent purposes. This is a risk if there's insufficient oversight on the buyer's side.
5. Agreement dependence: Self-billing relies on a clear and legally sound agreement between the buyer and supplier. Without a well-defined agreement, disagreements over pricing, terms, or validity of the self-billed invoice can arise.

Self-billing in Europe

Self-Billing in France

In France, self-billing requires a formal agreement between the buyer and supplier to ensure everyone is on the same page. This agreement paves the way for the buyer's platform to generate the invoice, which is then routed to the supplier through a directory structure mirroring traditional invoicing. 

A billing mandate is also established between the parties. Interestingly, even though the buyer creates the invoice, the supplier remains the recipient. To ensure proper identification within the French e-invoicing system, specific codes (like 389 for a self-billed invoice) are used in a designated field (BT-8) of the invoice. These codes even cover situations like self-billed credit notes and are being expanded for corrective invoices in future updates.

Self-billing in Poland

Poland also requires a self-billing agreement between buyer and seller, outlining the approval process for these invoices. Unlike France, this agreement doesn't need to be a formal written document. However, before initiating self-billing, the seller must grant the buyer authorization within the Polish KSeF platform. This process can be streamlined using functionalities built into solutions from companies like Comarch.

Current regulations might require foreign entities to register for Polish VAT if they transact with Polish companies using self-billing. This is because granting KSeF authorization currently necessitates a Polish VAT registration. Polish authorities are aware of this hurdle and are developing a solution.  Technically, Polish self-billing invoices require the buyer's information in the "Podmiot2" element and an annotation ("samofakturowanie") indicating "self-billing" with a specific code (Fa/Adnotacje/P_17 with value "1").

Integrating self-billing invoices with AP automation

Self-billing offers efficiency gains, but processing these invoices can still involve manual work. This is where accounts payable (AP) automation comes in. By integrating self-billing with AP automation, businesses can unlock a whole new level of efficiency in their e-invoicing processes.

Here's how it works:

1. Automated invoice generation: The buyer's system leverages pre-agreed-upon details to automatically generate the self-billing invoice.
2. Seamless integration: The generated invoice is then seamlessly fed directly into the AP automation system, eliminating the need for manual data entry.
3. Streamlined processing: The Accounts Payable automation system takes over, automatically processing the invoice for approval, payment preparation, and archiving. This significantly reduces manual intervention and processing times.

After integration, taxpayers can enjoy various benefits such as:

• Enhanced efficiency: The combined power of self-billing and AP automation streamlines the entire invoicing and payment cycle, freeing up valuable resources for other tasks.
• Improved accuracy: Automatic data transfer minimizes the risk of errors associated with manual data entry.
• Faster payments: Faster processing translates to quicker payments for suppliers, potentially improving vendor relationships.
• Cost savings: Reduced manual work leads to cost savings on administrative tasks.

While integration offers certain advantages, it's crucial to ensure compliance, as the systems must adhere to all relevant regulations for both self-billing and e-invoicing. Moreover, the agreement and integration process should be designed to benefit both buyers and suppliers.

Industries that can benefit from self-billing agreements

Self-billing offers greater advantages to industries with high-volume transactions, predefined pricing, and strong buyer-supplier relationships and industries with scan-based trading.

• Automotive manufacturing: Manufacturers can now track parts consumption and generate invoices based on actual usage, eliminating discrepancies and expediting the process.
• Grocery retailing: Scan-based trading, popular in grocery stores, benefits from self-billing. Upon purchase, the retailer's system triggers automated invoice creation using scan data. This simplifies VAT calculations for high-turnover inventory.
• Media and entertainment: Self-billing bridges the gap for digital goods such as e-books and apps. Retailers report sales figures and utilize self-billing for VAT, streamlining the process for both sellers and distributors.
• Consumer products: During replenishment, manufacturers can generate invoices based on received materials using pre-agreed unit prices, improving efficiency.
• Construction: The complex supply chains in construction often involve determining the value of materials after delivery. Self-billing empowers construction companies to create invoices based on actual usage, enhancing accuracy and streamlining the invoicing process.

Self-billing as a means of streamlining invoicing while mitigating risks

In conclusion, self-billing offers a streamlined approach to e-invoicing for specific scenarios. While it can significantly improve efficiency and accuracy, it's crucial to establish clear agreements, ensure regulatory compliance, and maintain proper oversight to avoid potential risks.

For businesses seeking to leverage self-billing's advantages, Comarch EDI platform offers a robust solution with a built-in self-billing feature, simplifying integration and automating invoice generation. With its functionalities, you can unlock the full potential of self-billing while ensuring a smooth and secure e-invoicing process.