What Is Electronic Invoicing? The Definitive Guide For Freelancers

E-invoicing is the reason why you can receive money for working remotely — if you’re a freelancer, you’ve probably sent those many times. But what are those and why do you need electronic invoices? Let’s find out all you need to know about electronic invoicing.

What is electronic invoicing?

Let’s say, you’re a freelance author writing articles for a corporate blog. You have just submitted the finalized version of the article about the best Upwork alternatives. You’re entitled to remuneration — but it’s not that simple!

Your supervisor, the blog’s editor, is not directly responsible for payments — the company’s accountant is. The accountant needs detailed information: how much money they need to send, to whom (and to which bank account), and so on. Do you know who else needs this information? Tax service workers. They need to know who the business sends money to and how much — otherwise, they won’t detect tax evasion. That’s why invoicing exists.

An invoice is a legally valid payment request — a document that contains all the details about the sale or fulfilled service: from billing info, amount owed, payment deadlines, descriptions of goods or services, and so on. It can be a printed document sent in the mail or a digital document. The latter is called an electronic invoice, or e-invoice.

Can you work remotely without e-invoicing?

Technically, yes — you can simply ask your client to send a certain amount of money on a certain date in a messenger or via email. It’s not a good idea though, and here’s why:

• It limits who you can work with. Smaller companies and individuals can agree to work without invoices when large corporations can’t afford it due to tax evasion allegations. So, not using e-invoicing will limit both your job opportunities and your income — corporations may pay you more for the same job compared to a small startup.
• It doesn’t protect you from mistreatment. Let’s say, your client has never had an intention of paying you or decided to cut costs after you finalized the project. Or they decided to pay you a month later than you expected. A message in WhatsApp has no legal value, so it doesn’t count in your favor when you file a lawsuit. Meanwhile, an electronic invoice will allow you to protect yourself and get the reward you deserve.
• It’s just inconvenient. It’s not just about tax calculation — tracking informal payment requests via emails and messages is borderline impossible. Your freelancer life is hard enough to add more chaos to your work processes. Do yourself a favor and keep at least your payment documents in order.

E-invoice vs Receipt vs Bill: what’s the difference?

Receipts, bills, and invoices have one thing in common: all of them have a list of purchased stuff with their prices and the total sum of money. But they’re not interchangeable — here’s the difference:

• A receipt is a document that you get after you pay for something and it simply proves that the transaction was complete. Think of a grocery store receipt — you won’t get one unless you buy at least a chewing gum.
• A bill, like an invoice, is a payment request — however, it’s a simpler document that contains less legal or accounting information. Think of an electricity bill — these won’t typically mention your social security number or the place of your tax residency. 
• Finally, an invoice is a detailed payment request necessary for taxation and bookkeeping. It’s also more common in B2B relationships. Think of a document that a furniture store will send to an IT company after it buys 100 tables for its brand-new office.

So, technically, an invoice is a fancier bill for accountants.

Pros and cons of e-invoicing

An obvious advantage of e-invoicing is faster processing times — it’s especially relevant for those working remotely. Imagine waiting at least a week for a letter to reach your employer (if it doesn’t get lost in the mail), then waiting another couple of weeks… Planning any personal expenses would be impossible at that point!

It’s not the only brownie point — here’s what else to consider:

• Easier taxes. Tax calculation with paper invoices would be a nightmare! Imagine yourself rummaging through a pile of papers at the end of your fiscal period — doesn’t sound fun! Meanwhile, some e-invoicing systems calculate your taxes automatically.
• Less chaotic records. Digital invoices make it easier to keep and access historical records. You might need it for different purposes — for example, information about old invoices can help you in court.
• No clutter. Paper invoices are, well, paper, so you’ll end up with a pile of dust-collecting garbage on your table. It’s also not eco-friendly. Meanwhile, the only garbage e-invoices create is on your hard drive.

However, e-invoicing has drawbacks too like:

• Cybersecurity issues. Unlike paper invoices, e-invoices are susceptible to malware, data breaches, and other threats.
• Software expenses. E-invoices require separate infrastructure, and not all of your clients are ready to buy and install one.
• Troubles with offline buyers. If you’re freelancing in a blue-collar field or just working with offline clients too, digital invoices are actually inconvenient.

How does e-invoicing work?

To understand how e-invoicing works, we need to clarify that none of these count as electronic invoicing:

• Paper invoices sent via fax
• Scanned paper invoices sent as PDFs or pictures
• Editable text documents
• Unstructured HTML documents

What counts as an e-invoice then? Electronic invoices are uneditable documents in a specific format with structured data that can be recognized by a machine. There are two types of structured data transmission:

• XML — it’s a markup language with tags similar to HTML.
• EDI — this abbreviation stands for Electronic Data Interchange, and it’s an umbrella term for standardized digital documents. There are several EDI standards for business documents, such as EDIFACT, ANSI, etc. The format you’ll need depends on your client and the country of operation.

Do you have to worry about all these standards and formats? No — all you need to start sending e-invoices is e-invoicing software. Both freelancers and businesses using their services can sign up and use them for e-invoicing. Such tools act as the middle man between your and your client’s bank account. Here’s how it works:

1. You and your client sign up for the same tool and sign an electronic freelance contract there.
2. When the payday is approaching, you create an e-invoice where you don’t have to fill in the data manually — it’s all copied automatically from the contract.
3. Your client receives the e-invoice in the app without exporting anything and fulfills it accordingly.
4. The money goes from your client’s bank account to yours with the e-invoicing tool as the middle man. Sometimes the transfer from the tool to your bank account happens automatically, sometimes you have to withdraw your remuneration manually — it depends on the tool, whether the money transfer is international or within the country, and so on.

It’s the standard workflow with e-invoicing — in fact, I described my own workflow as a freelance writer. However, some details depend on the tool and your client’s needs. For example, your workflow may involve exporting e-invoices as documents of different formats, SWIFT money transfers, and so on.

How to choose e-invoicing software for your freelance needs

There are tons of e-invoicing tool options available on the market — let’s explore some of them and learn how to choose the right e-invoicing software to start earning as a freelancer.

Key features of e-invoicing software to consider

E-invoicing tools, like other SaaS products, often come with bells and whistles — and you don’t need all of them. Here are the key features to pay attention to:

• Automated e-invoicing. This is the baseline feature — your e-invoicing tool should allow you to generate electronic invoices automatically via the same template. It’s particularly great if the tool offers automated recurring invoices — that’s a great feature for those working for a fixed monthly rate.
• Digital signatures. If you need to print the document, sign it manually, and then scan, it doesn’t count as 100% electronic invoicing — for your and your client’s convenience, the tool should allow you to sign the document digitally. It can be done via email or SMS codes.
• Multichannel e-invoicing. For some of your clients, you may need to export generated e-invoices as non editable PDFs, pictures, or XML files to send them via email or in a messenger. So, having multi channel support would be nice.
• Tax management. Some e-invoicing tools offer automated tax management from calculation to reminders about payments.
• Archives and reporting. Keeping an archive of past e-invoices is a legal requirement, so your tool should have this feature. And various reporting tools will help you with personal finance management and assessing how well you’re doing as a freelancer.
• Integrations with other tools. These tools may involve, for example, other payment systems — for, let’s say, receiving money via PayPal and not just bank transfers, which is a good option for your international clients. Or, if aside from working with clients, you’re running a paid newsletter, an integration with the email software you’re already using will also allow you to legalize your side hustle.

Best e-invoicing software for freelancers

The e-invoicing software market has a lot of tools to offer — let’s check out some of the particularly beginner-friendly apps that are worth trying. We chose these tools because they’re friendly to junior freelancers in terms of pricing, offer free versions or at least long free trials, and have interesting features for different user needs.

• Solowise. It’s a young and emerging payroll service for freelancers and organizations that aims to transform gig work. It offers a generous free plan with access to basic contract templates and secure payments using several available methods. Very beginner-friendly!
• Zoho Invoice. It’s a great option for small businesses and solopreneurs, especially those already using other Zoho products like Zoho CRM, Zoho Sales IQ, etc. It also works on all devices and has an in-built time tracker — great for freelancers using hourly rates!
• FreshBooks. It’s a powerful accounting software that also calculates your taxes, covers all the bookkeeping and accounting needs, and sends automated payment reminders to your clients. There is no free plan but you can try the tool for 30 days.
• Harvest. First and foremost, it’s a time tracker with an invoicing feature, so this tool is the best fit for those working for hourly rates. It also offers a solid set of integrations with Jira, Slack, Asana, other payment systems like Stripe and Paypal, analytics software, CRM systems, etc. Its forever-free plan is also pretty generous: 1 seat, 2 projects, time tracking, invoices, and basic reporting — an amazing starter pack for a beginner! Freelance programmers will also appreciate the GitHub integration — you’ll be able to sync time-tracking data with pull requests, pretty sweet, right?

Wrapping up

Now you know all the necessary information about e-invoicing — here’s a quick rundown of what we’ve learned:

• An invoice is a legally and fiscally valid payment request. Unlike receipts, it’s sent before the payment is received — and, unlike bills, it’s a more complex document with more information.
• An electronic invoice, or an e-invoice, is a computer-generated electronic document in a standardized format. Scanned paper invoices, invoices sent as images via fax, or poorly formatted electronic documents don’t count as invoicing!
• E-invoices are processed way faster compared to paper invoices, don’t generate physical clutter in your workspace, and make tax calculation much easier — it’s a great tool for remote workers!
• To send an e-invoice, use payroll software like Solowise — it generates invoices automatically, so you don’t have to worry about data formats.

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