The process of receiving, executing, and dispatching customer invoices using electronic data interchange is known as EDI invoicing. Electronic data interchange (EDI) refers to the inter-company exchange of critical business information and documents between two corporate organizations via computers. Companies adopting this software technology need to first mutually agree to adopt a specific industry-based EDI messaging standard. These EDI standards could be any one of the following:
- American National Standards Institute (ANSI) Accredited Standards Committee (ASC) X12,
- Electronic Data Interchange for Administration, Commerce, and Transport (EDIFACT), and
- Universal Business Language (UBL).
These companies then need to decide which EDI Internet transmission protocol to use when communicating. The businesses can choose from the following:
- Applicability Statement 2 (AS2),
- Secure File Transfer Protocol (SFTP), or
- Simple Object Access Protocol (SOAP).
What does an EDI invoice contain?
An EDI invoice is the electronic version of conventional paper-based customer invoices companies dispatches to buyers after fulfilling their purchase orders. It is assigned the transaction code EDI 810 if the enterprises adopt the ANSI ASC X 12 messaging standard. This business document contains the following information:
- The data of issuing the customer invoice,
- The EDI 850 purchase order number against which the companies prepare and dispatch the invoice,
- The name of the customer,
- The quality and description of the products the buyer wishes to purchase,
- Selling price per product and total sales value payable by the buyer,
- Taxes chargeable, and
- Discounts applicable.
How does EDI invoicing work?
The EDI invoicing system companies install and operate for their businesses works in the following manner:
- Their EDI software platform receives an EDI 850 purchase order from their customers,
- The software platform generates a data file via its mapping process, which integrates into the companies’ ERP software,
- The companies’ enterprise resource planning (ERP) software platform checks its inventory module for the availability of the products,
- The companies’ warehouse personnel then prepare to pack and ship the products to the customers,
- The enterprise resource planning (ERP) software system then generates a customer invoice and sends it to the EDI software platform,
- The EDI software platform on receiving the ERP customer invoice generates its own version, and
- The EDI invoice is then sent to the customers’ computer system.
The advantages of installing and operating an EDI invoicing system for companies of all sizes are as follow:
- Boosts internal efficiency by minimizing administrative time on preparing, processing, and dispatching paper documents,
- Ensures faster rectification of discrepancies in the electronic version of the customer invoices resulting in timely payments, and
- Eliminates common clerical errors companies associated with the manual processing of paper documents.
Operating a system that processes an EDI invoice enables companies to automate and revamp their entire billing procedure. This enhances the internal efficiency of their businesses and induces their customers to clear their outstanding dues on time. However, the EDI invoicing system companies shortlist should integrate easily into their IT infrastructure. Moreover, the software solution needs to adapt to the latest artificial intelligence and machine-learning technology. Above all, the EDI platform has to be user-friendly, cost-effective to operate, and compatible with their existing business solutions for functioning optimally.