What Is Self-Billing?

Q: 2. Who benefits more - buyer or supplier?

Buyers gain more control, but suppliers benefit from: Faster payments Reduced billing costs Fewer disputes

Q: 3. How are VAT/GST handled?

Buyer reports input tax (EU common practice) Requires valid supplier VAT number Supplier still liable for accurate tax reporting

Self-billing is an invoicing arrangement where the buyer (rather than the supplier) prepares and issues invoices for goods or services received. This reverse billing method is particularly common in:

High-volume procurement relationships
Recurring service contracts
Government and corporate supply chains
EU VAT reporting (where legally permitted)

Key Characteristics:

Buyer-controlled invoicing process
Requires formal written agreement
Typically uses pre-agreed pricing
Automates accounts payable workflows

How Self-Billing Works

The 5-Step Process:

Contract Agreement – Both parties sign self-billing terms
Goods/Services Delivery – Supplier fulfills order
Buyer Creates Invoice – Based on delivery records
Approval & Payment – Supplier reviews, buyer pays
VAT Reporting – Buyer handles tax documentation

Types of Self-Billing Arrangements

1. Full Self-Billing:

Buyer handles 100% of invoicing
Common in retailer-supplier relationships

2. Partial Self-Billing:

Used for specific transactions
Example: utility bill reconciliations

3. Consignment Self-Billing:

For inventory held at buyer’s location
Invoiced when items are actually used

Benefits of Self-Billing

For Buyers:

Process efficiency – Reduces AP workload by 40-60%
Payment control – Schedule payments strategically
Early payment discounts – Easier to capture
Dispute reduction – Fewer invoice errors

For Suppliers:

Faster payments – Predictable processing
Lower admin costs – No invoice creation
Improved cash flow – Regular payment cycles
Reduced disputes – Pre-agreed terms

Self-Billing vs Traditional Invoicing

Feature	Self-Billing	Traditional Invoicing
Invoice Creator	Buyer	Supplier
Control	Buyer-managed	Supplier-managed
Payment Timing	Predictable	Variable
Error Rate	2-5%	10-15%
Best For	Repeat orders	One-time purchases

Legal Requirements for Self-Billing

Essential Contract Terms:

Written Agreement – Mandatory in most jurisdictions
VAT/GST Compliance – Tax responsibility clarity
Pricing Mechanism – Pre-defined rates/formulas
Duration Clause – Typically 12-24 month terms
Audit Rights – For verification purposes

Sample Clause: “The Buyer shall issue self-billed invoices monthly based on actual deliveries at the contracted rates. Supplier agrees to accept these as valid tax documents.”