Some Ways Invoicing Differs in the U.S. and Europe
Sending and receiving invoices varies around the world with each country having its own system in place that governs invoicing standards. However, general trends are followed among member states in the EU (for the most part), or states in the U.S. It is when we have to send invoices across farther geographical regions that we start running into barriers or real differences in the invoicing process.
An example of this is paying sales tax in the United States vs VAT rates in Europe and the United Kingdom. Another example is whether we pay the invoice based on the tax rate of the supplier vs customer, which can vary in different parts of the world. Finally, there are differences in what needs to be included on an actual invoice for it to be considered legitimate.
There are also obviously the things to keep an eye out for like payment terms, currencies used in different countries, language barriers and differences and things of this nature when dealing with international clients or customers. Different regions of the world also have a different culture of invoicing. Some countries use less paper trials or invoicing in general as everything is done with cash by hand. Other countries are opposite and have a culture of recording every financial transaction even if not needed. There is also the aspect of freelancing and how some countries have a large freelance workforce and others not so much.
The UK is pretty unique in the sense it sits between the U.S. And European systems in many ways. It shares similarities, but also, differences with both regions. Importing goods from nations within the EU is referred to as acquisitions by HMRC, for instance, rather than imports, which are goods imported from outside the EU. The tax rate or VAT on goods imported from within the EU is known as acquisition tax and is usually at a standard VAT rate of 20%.
Each U.S. State has its own sales tax system available and rates vary from state to state. However, in the U.S. Invoices are often not needed or the tax rates when dealing with eCommerce, for instance. The whole system is more relaxed and less regulated varying state by state.
According to GoingFreelance, “The US is, fortunately or unfortunately, quite relaxed when it comes to rules and regulations on invoicing. For the most part, if you are a B2C selling to US customers, you probably won’t need to send out an invoice at all.”
Once someone has been paid, he or she simply gives their customer a receipt of the transaction. Invoices are more used with online transactions between vendors or freelancers/contractors and companies they work for.
Another thing to consider is difference in payment terms or gateways users rely on in the UK and the U.S. PayPal is popular in the U.S. as well as paying for things online using credit cards. Users are used to always paying with credits and may be more trustworthy in this regard. Bank transfers are also different as the U.S. System relies on ACH transfers and often to do a wire transfer one needs to know not just the account number, but also a routing number (in the UK a sort code may be needed) as well as other information like the address of the bank the funds will be transferred to.
The U.S. Also has an invoicing culture that is still tied to paper as unlike Europe, there is no mandate or push by politicians for eInvoicing to take off anytime soon. This also means U.S. Companies have to often suffer longer wait times for invoices to be cleared.
According to Benzinga, “North American trucking companies have $140 billion in outstanding invoices at their customers on any given day. With an average payment time of 45 days...”
Both European and the U.S companies should adopt eInvoicing solution and SaaS software such as ours at invoiceOcean to be able to stay on top of their invoices with prompt sending and payments as well as the tracking of previously-sent invoices electronically.