Explaining e-invoicing models after audit and settlement – Intelligent CIO Europe

Missed payments, errors, and lost documentation plague traditional invoicing. E-invoicing offers a secure and efficient solution, streamlining workflows and increasing tax compliance. It should come as no surprise that e-invoicing is slowly but surely becoming the norm in modern business. Digital change is not only impacting the way organizations issue and receive invoices, but also the technical side of sending data to other entities. With the introduction of new e-invoicing mandates and compliance requirements for B2G, B2B, and B2C transactions, two dominant invoicing models have emerged: post-audit and clearing.

Global e-invoicing mandates

Electronic invoicing has a long list of benefits for taxpayers. E-invoicing:

Streamlines workflows by significantly reducing processing costs and errors

Reduces paper usage, supporting a greener and more sustainable work environment

Improves tax compliance with more accurate and timely records

Promotes process automation, modernizing various business processes in the company

But why are governments implementing mandates to enforce the use of electronic invoicing?

The obligation to send invoices electronically results both from the need to close the tax gap and from the desire to speed up and simplify document circulation.

The tax gap refers to the difference between the total amount of tax that should be collected by the government and the amount that is actually collected. It basically represents the lost tax revenue due to various factors, such as underreporting of revenues.

Combating this gap with electronic invoicing is a much better solution than increasing taxes and is just as effective.

E-invoices are audited by each country’s tax administration, just like regular invoices. However, e-invoices offer advantages through streamlined, accurate reporting and a reliable audit trail, leading to better assessment of tax volumes, combating fraud and improving financial transparency.

As governments implement e-invoicing to address the tax gap, they can choose different models and formats (including required fields on invoices, reporting frequency, etc.). This leads to differences in invoice formats across countries. These regulations, often technical and complex, require companies operating internationally to continually adapt to remain compliant. The two most popular e-invoicing models are post-audit and clearing.

E-invoicing model after audit

In the post-audit model, data is transferred between partners without involving authorities in the process. However, tax authorities can still later audit these transactions for compliance.

In regions where e-invoicing is mandatory after audit, the authenticity and integrity of data must be ensured. This can be achieved by combining traditional post-audit practices and modern methods, such as:

Electronic Data Interchange (EDI) Software

In post-audit models, compliance is an ongoing process that involves adapting to local requirements. Reporting then occurs “after the fact,” ensuring that data complies with those requirements. Businesses have some flexibility in choosing their e-invoicing method, depending on the specific regulations in their country. However, they must ensure that invoices are properly stored for potential audits, typically for up to 10 years. Tax administration audits may take place periodically after the reporting deadline or upon request. Generally, companies are responsible for proving the authenticity (genuineness in accounting terms) of their invoices.

Countries using the post-audit model

The post-audit model is currently used in most European countries, Canada and Australia.

The UK is an example of a post-audit model for e-invoicing in B2G and some B2B transactions. While e-invoicing is not mandatory for most businesses, the government is encouraging electronic transactions, particularly in the case of the National Health Service (NHS), which requires a specific e-invoicing solution. Other public bodies must be able to receive e-invoices if their suppliers choose to send them electronically. Flexibility is enhanced by the fact that e-invoices can be structured (XML) or unstructured (PDF), and traditional EDI formats are also accepted.

E-invoicing model for settlements

The billing model proposes a different approach. Here, e-invoices are sent via government platforms that allow tax authorities to review transaction documents in real time. Each invoice must be submitted and authorized electronically before or during the exchange process. In addition, each invoice must be sent in a specific format, such as a structured XML format. Most data is sent and analyzed in real or near real time. Compared to the post-audit model, the clearing approach involves monitoring and supervising transactions more directly.

In this way, the invoice can be approved before it is sent to the recipient. Once approved, the government entity will stamp, sign, or encode the confirmation, authorizing it to be sent to the recipient.

Countries using the settlement model

Gaining popularity worldwide, the e-invoicing billing model gives governments control over business transactions in real time. Unlike the post-audit model, invoices require pre-approval to ensure data accuracy, with implementation varying by country. This approach reflects the government’s right to audit all transactions for effective tax enforcement.

Recognizing the inefficiencies of fragmented systems in Europe, the European Parliament took steps towards a more harmonised approach to e-invoicing in 2022. The resolution called for a harmonised standard, exploring the possibility of mandatory e-invoicing with a focus on reducing costs for small businesses. It also highlighted the potential for real-time reporting and state-controlled systems with data security. In anticipation of VAT rules for the digital age, countries like Poland are accelerating their efforts to implement e-invoicing. ViDA is expected to phase out billing models, so Poland will likely need to adapt its current system to remain compliant.

Following this trend, Poland has already established the SAF-T system and is moving to a settlement model through the national National Electronic Invoicing System (KSeF). KSeF uses a mandatory XML format and is currently in a voluntary phase after a pilot period. While the initial plans were for a mandate in 2024, delays due to major platform bugs and further considerations have delayed the mandatory implementation. Poland is the last EU Member State to adopt a settlement model for electronic invoicing, moving from a post-audit approach. The timeline for implementation is as follows:

February 1, 2026: Applies to entities whose sales value in the previous tax year exceeded PLN 200 million

April 1, 2026: Applies to all other companies

Other countries implementing the billing model include Italy, Turkey, and several Latin American countries. Hungary also uses the model, offering real-time invoice reporting.

Final Audit and Debriefing: Summary

	After the audit	Clearance
Level of involvement of the tax authority	Short The tax authority does not participate in the initial exchange of invoices	Tall Invoices must be approved by the tax office before being issued.
Invoice approval process	No prior consent is required	Real-time or near-real-time validation
Data accuracy and security	Requires strong internal controls to ensure data accuracy for audit purposes	Greater data accuracy potential with real-time validation
Business flexibility	More flexibility for businesses to choose their preferred electronic invoicing method	Less flexibility as companies must adapt to specific electronic invoicing formats and regulations
Adoption	Most European countries, Canada and parts of Asia	Latin America, Italy, Poland and Türkiye

The Importance of Understanding Electronic Invoicing Regulations

The two main approaches to mandating e-invoicing are the settlement and post-audit models. In the settlement model, the government takes a proactive approach by requiring pre-approval of invoices before they are issued. This ensures real-time data validation and minimizes the risk of errors or fraud. Countries like Poland are adopting this model for tighter tax controls. The post-audit model gives companies more flexibility in their invoicing methods. However, the responsibility for ensuring that invoices are properly stored for potential audits rests with the company, which can be a burden for some organizations. Furthermore, the burden of ensuring data accuracy ultimately falls on the company.

Understanding the specific e-invoicing regulations in each country you operate in is crucial. Failure to comply can result in significant fines, delays in receiving payments, and reputational damage. This complexity is especially acute for companies operating across borders. Differing tax laws and e-invoicing mandates can make international invoice transmission a challenge. However, the right e-invoicing software can help you navigate these complexities. It can help you comply with various regulations, automate invoice formatting and submission, and simplify communication with tax authorities.

Whether your business operates domestically or internationally, a solid e-invoicing system is essential to ensure smooth operations and avoid unnecessary hassles. Comarch’s cloud-based e-invoicing platform eliminates the confusion. Our software ensures compliance in over 60 countries, regardless of the specific model. Streamline global invoicing, automate processes and stay up to date with changing regulations with Comarch.

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