Mistakes Entrepreneurs Make When Implementing E-Invoicing – And How to Avoid Them

In light of the rapid digital development witnessed by the Kingdom of Saudi Arabia, electronic invoicing has become a key pillar of business operations, and a mandatory step towards achieving the Kingdom's  Vision 2030. While this transformation carries with it many advantages that enhance efficiency and transparency, it poses new challenges, especially for startups that may lack sufficient experience in dealing with complex technical and organizational requirements. Many entrepreneurs make common mistakes when applying electronic invoicing, which can cost them hefty fines and hinder the growth of their projects.
This article aims to shed light on the most prominent mistakes that entrepreneurs in the Kingdom of Saudi Arabia make when applying the electronic invoicing system, whether at the issuance and filing stage or at the stage of linking and integrating with the Zakat, Tax and Customs Authority (ZATCA). The article will also provide practical solutions and how-to tips to help them avoid these mistakes and ensure full compliance with regulations, paving the way towards a seamless and effective e-billing experience that supports the continuity and success of their startups.

Introduction to e-invoicing and its importance

Electronic invoicing is defined as the process of issuing and filing invoices, debit and credit notes in a structured electronic format, rather than relying on traditional paper invoices. This system aims to streamline financial operations, enhance transparency, and combat tax evasion. In Saudi Arabia, the Zakat, Tax and Customs Authority (ZATCA) has obligated all taxpayers subject to the e-invoicing regulation to switch to it in two stages:

The first phase is the issuance and archiving phase: It started on December 4,  2021, and requires the issuance and filing of tax invoices and notices in an organized electronic format that is compatible with the requirements of the Authority.

The second phase is the linking and integration phase: It started gradually on January 1  , 2023, and requires electronic invoicing systems to integrate directly with the Authority's  "Fatora"  platform, and to share invoices automatically.

The importance of electronic invoicing for startups lies in several aspects:

  • Legal Compliance: Compliance with ZATCA  regulations avoids startups from fines and penalties of up to SAR  50,000 in some cases, and ensures continuity of legal processes.

  • Improve operational efficiency: Automating the invoicing process reduces manual errors, saving time and effort, allowing startups to focus on core activities that support growth.

  • Cost savings: Reduces printing, paper, storage, and shipping costs, as well as reduces the need for error correction and re-invoicing.

  • Enhance transparency: Provides accurate and orderly records of all financial transactions, facilitating audits and audits.

  • Improve cash flows: Speeding up the invoicing and collection process enhances the liquidity of the startup.

  • Building a professional reputation: Using a modern electronic billing system that reflects a positive image of the project in front of customers and partners.

  • Facilitate integration: Enables integration with other business management systems such as accounting andCRM, improving data flow and process efficiency.

Common mistakes in the first stage Release and save

The first stage of electronic invoicing, known as the issuance and archiving phase, is the foundation on which the entire ecosystem is built. Despite its relative simplicity compared to the second phase, many startups make serious mistakes during this phase, which can lead to non-compliance and fines:

  • Omission of mandatory fields in the invoice:
    Error: Not including all mandatory fields specified by the Zakat, Tax and Customs Authority  (ZATCA) in the electronic invoice. These fields typically include: invoice number, date and time of issue, buyer and seller tax number if any, details of goods or services, total amount, and VAT amount. Entrepreneurs may overlook some of these fields or enter them incorrectly.
    Impact: The invoice is considered incomplete and incompatible, which leads to its rejection by the Authority and exposes the project to fines.

  • QR Code deprecated:
    Error: QR Code not included  in B2C simplified tax invoices, incorrectly included so that it cannot be scanned, or does not contain the required information Seller name, VAT registration number, time and date, total VAT, and total invoice including tax.
    Impact: A QR code is an essential tool for invoice validation, and neglecting it makes the invoice non-compliant and exposes the project to violation.

  • Unapproved invoices:
    Error: Using unsupported formats for e-invoicing, such as  traditional PDFs that don't have an electronic signature or embedded XML data. The Commission requires the use of specific formats such as XML or PDF/A-3 with the inclusion of XML.
    Impact: Invoices issued in unapproved formats will not be accepted by FANR, which means that the project did not comply with the requirements of electronic invoicing.

  • Lack of a valid electronic signature: 
    Error: Issuing electronic invoices without a valid electronic signature, or using a signature that does not comply with the standards set by the Authority. An electronic signature ensures the integrity of data and non-tampering.
    Impact: Invoices without a valid electronic signature are considered unreliable and incompatible, exposing the project to legal accountability.

  • Reliance on paper invoices after the binding date:
    Error: Continue to issue paper or manual invoices after the date of the obligation in the first stage, or use them as an alternative to electronic invoices.
    Impact: This is a clear violation of the regulations, as all invoices must be made via the compliant electronic system after the binding date.

  • Failure to keep electronic copies of invoices: 
    Error: Not saving electronic copies of all invoices issued and received, or saving them in an unorganized manner that does not guarantee easy access to them when needed.
    Impact: This may lead to serious difficulties during the audits and review processes, and expose the project to irregularities due to its inability to submit the required documents.

Common mistakes in the second stage of linkage and integration

The second phase of e-invoicing is more complex and requires direct integration with the systems of the Zakat, Tax and Customs Authority. Mistakes at this stage can have serious consequences for startups:

  1. Technical solution unit not registered: 
    Error: Omission to register the Solution Unit responsible for sending invoices electronically with the Zakat, Tax and Customs Authority. This registration is necessary to enable the interconnection between the project's billing system and  the  Fatora government platform.
    Impact: Failure to register results in the rejection of all invoices issued, and the project is considered non-compliant, exposing it to fines.

  2. API compatibility issues:
    Error:  The billing system API settings in use do not match  the technical specifications specified by ZATCA, or there are errors in the linking process.
    Impact: This hinders the automatic sending of invoices to the Fatora platform, resulting in delays in sending or rejection of invoices, and therefore non-compliance.

  3. Delay in sending invoices after they are issued: 
    Error: B2B tax invoices were not sent as soon as they are issued, or B2C simplified tax invoices were delayed  for more than 24 hours from the time they were issued. The authority sets strict deadlines for sending invoices.
    Impact: The project is subject to penalties and fines as a result of non-compliance with the deadlines set for dispatch.

  4. Tampering with the chronology of invoices:
    Error: There is a duplicate, delete, or incorrect sequence of issued invoice numbers. Each electronic invoice must carry a unique and sequential serial number.
    Impact: Any tampering with the chronology is an attempt to manipulate or conceal data, resulting in severe penalties.

  5. Failure to update the billing system continuously:
    Error: The electronic invoicing system used to keep pace with the changes and updates that may occur to the regulations and requirements of the Zakat, Tax and Customs Authority was not updated.
    Impact:  The system may become incompatible with the latest requirements, resulting in invoice rejection or inability to connect with DEWA's platform.

  6. Audit Logs: 
    Error:  The electronic invoicing system did not create and save detailed audit logs for all activities related to invoices, such as time and date of issuance, amendments, and submission.
    Impact: Audit logs are necessary to demonstrate compliance and track any issues, and their lack of them may expose the project to accountability during audits.

How to avoid these mistakes? Practical solutions

To avoid common mistakes and ensure full compliance with Saudi Arabia's e-invoicing requirements, entrepreneurs should adopt practical strategies and solutions:

  • Comprehensive understanding of legal and technical requirements: 
    Solution: Allocate sufficient time to study the regulations, controls and technical requirements issued by the Zakat, Tax and Customs Authority (ZATCA). Read about DEWA's guides, FAQs and educational materials. Ensure you have an accurate understanding of mandatory fields, XML and PDF/A-3 approved invoice formats, e-signature requirements, and how  a QR code works.
    Application: Create  a checklist of all requirements and make sure they are met before any electronic invoice is issued.

  • Choose a compatible and certified e-invoicing system:
    Solution:  Invest in a ZATCA-certified e-invoicing system. Ensure that the system supports all technical requirements, including generating invoices in the required formats, including the inclusion of all mandatory fields, the generation of a QR code, the provision of a valid electronic signature, and the capabilities of direct linking with the Fatora platform in the second phase. 
    Application: Compare solutions available in the market, request demos, and consult authorized solution providers. Ensure that the system provides regular updates to ensure continuous compliance with any future changes in regulations.

  • Continuous Staff Training: 
    Solution: Train all employees involved in issuing or handling invoices to use the new system and understand the requirements of electronic invoicing. Training should include how to enter data correctly, validate invoices, deal with errors, and understand the importance of the chronology of invoices.
    Application: Holding periodic workshops, providing clear training materials, and assigning an internal technical support officer to answer employee inquiries.

  • Conduct extensive testing before full implementation:
    Solution: Before you start fully issuing electronic invoices, perform comprehensive system tests. Experience the process of issuing invoices, embedding fields, generating a QR code, e-signature, and linking with DEWA's platform in the second phase.
    Application:  Use the Sandbox test environment if available by the solution provider, and issue trial invoices to ensure that it is error-free and compliant with requirements.

  • Periodic Review and Internal Audit: 
    Solution: Conduct periodic reviews of invoices issued and received to ensure their accuracy and compliance with regulations. Review  audit logs regularly to track any abnormal activities or errors.
    Application: Hire an internal e-invoicing compliance officer, or hire an external expert to conduct regular audits.

  • Keep accurate and organized records: 
    Solution: Ensure that your electronic invoicing system keeps all invoices, notices and audit records securely and organized, and for a sufficient period in accordance with legal requirements.
    Application: Use reliable cloud storage solutions, and make regular data backups to ensure it is not lost.

  • Effective communication with the Zakat, Tax and Customs Authority and Solution Provider:
    Solution: Feel free to contact ZATCA in case of any queries or ambiguities about the regulations. Keep in constant contact with your e-billing solution provider for technical support and updates.
    Application: Subscribe to DEWA's newsletters, attend DEWA's workshops and seminars, and benefit from the solution provider's technical support channels.

Additional tips for entrepreneurs

In addition to avoiding common mistakes, there are some additional tips that can help entrepreneurs in Saudi Arabia get the most out of the e-invoicing system and ensure the success of their projects:

  • Start early and don't wait for the last minute:
    Tip: Don't postpone your e-invoicing application until the last minute before the obligation date. Starting early gives you enough time to understand the requirements, choose the right system, train the team, and address any challenges that may arise.
    Benefits: Reduces stress and tension, allows for smooth and orderly application, and avoids potential fines.

  • Benefit from government support and initiatives:
    Advice: Follow up on government initiatives and support programs that may be provided by stakeholders, such as the Small and Medium Enterprises Authority Monsha'at or the Zakat, Tax and Customs Authority, to facilitate the process of digital transformation and the application of electronic invoicing.
    Benefits: These initiatives may provide financial, advisory or training support that helps you afford the costs of your transformation and ensures you get the right information.

  • Focus on streamlining internal processes:
     Advice: Don't view e-invoicing as a legal obligation, but as an opportunity to re-engineer and streamline your internal financial processes. Review your current workflow and identify areas that can be improved and automated with your e-invoicing system.
    Benefits: Leads to increased efficiency, reduced errors, and improved cash flow management, which reflects positively on the performance of your project.

  • Consult experts and specialists:
    Advice: If you feel confused or uncertain about any aspect of e-invoicing, feel free to consult accountants, tax advisors, or technical solutions companies specializing in electronic invoicing.
    Benefits: This provides you with accurate and personalized guidance for your project, helps you avoid costly mistakes, and ensures you fully comply with regulations.

  • Keep data secure:
    Tip: Make sure your electronic invoicing system offers high levels of security to protect your sensitive financial data from being hacked or lost. Use strong passwords, enable multi-factor authentication, and ensure your service provider follows information security best practices.
    Benefits: Protects your business from security risks, maintains the confidentiality of customer data, and ensures the continuity of business operations.

  • Take advantage of reports and analytics:
    Tip: Advanced electronic invoicing systems provide detailed reports and analytics on billing data. Take advantage of these reports to understand sales patterns, track receivables, and analyze your project's financial performance.
    Benefits: Help you make informed business decisions, identify opportunities and challenges, and improve your financial strategies.

The shift to electronic invoicing in Saudi Arabia represents a crucial step towards a more efficient and transparent digital future. Although this transformation may seem complicated at first, especially for startups, understanding common mistakes and how to avoid them is the key to success and compliance. By adhering to legal and technical requirements, choosing the right systems, training employees, and conducting periodic reviews, entrepreneurs can not only avoid fines and penalties, but also turn e-invoicing into a competitive advantage that enhances the efficiency of their operations and supports their sustainable growth.
Always remember that electronic invoicing is not just a formality, it is an integral part of your project's digital infrastructure. Invest in knowledge, choose the right technology partners, and be proactive in implementing changes, and you will find that this transformation will open up new horizons of efficiency and success in the growing Saudi market.