The process of receiving, executing, and sending business invoices using electronic data interchange (EDI) is known as EDI Invoice. Electronic data interchange is the inter-company exchange of vital business documents in a standardized format via computers. These could include purchase orders, sales invoices, payment receipts, shipping notices, inventory stock sheets, and customs documents.
It replaces the manual procedure of processing and executing paperwork representing commercial transactions. Companies adopting this billing system agree with their trading partners on using a specific EDI transmission standard. The corporate enterprises could choose between either ANSI ASC X12 or EDIFACT depending on their particular needs.
EDI invoice: How does it overcome the inherent difficulties of manual billing?
Company’s processing business invoices manually find their billing systems to be unnecessarily complex, time-consuming, and expensive. They generally receive these commercial documents from a variety of sources like fax or by post. Employees of these companies then have to verify the authenticity of each of this paper invoices. Finally, a senior member of the staff has to sanction and approve the business documents for payment. Only then can they record the information for them in the accounting software? As a result, the companies can lose money in late fees due to delay in payments. This adversely affects the business relationship they maintain with their trading partners.
Real-time processing of an EDI invoice help companies overcomes the difficulties of the manual system in the following ways
- Minimizes the costs of storing, printing, mailing, and filing business invoices in the conventional paper format,
- Reduces the timeline it takes to receive, enter, execute and sent business documents in paper format.
- Enhances operational efficiency by re-allocating surplus employees from billing to other productive areas, and
- Shortens business cycles and ensure prompt updating of inventory levels after every transaction,
- Improves the quality of the business data by eradicating costly clerical errors inherent in the manual system.
EDI invoicing allows companies to do their bit in promoting a greener environment by limiting the use of paper documents.
How does EDI invoicing work?
Companies can process business invoices using electronic data interchange (EDI) in the following manner:
- They receive purchases orders in the EDI 850 format from their vendors on their computers’ EDO software,
- The software simultaneously processes the information on this data file to enterprise resource planning (ERP) system,
- The ERP software then checks its inventory module for the availability of products the vendors want,
- The software then ships the products if they are available and prepares the relevant customer invoices,
- The EDI software then receives and translates ERP customer invoices into their equivalent EDI format, and
- The EDI invoices are then electronically sent to the respective vendors via computers.
Processing of an EDI invoice allows companies of all sizes to automate and streamline their entire billing system. This improves the internal efficiency of these corporate enterprises by eliminating clerical errors and minimizing business cycle timelines. They can choose to implement the EDI billing system in-house or by hiring service providers. Companies need to ensure the corporate vendors they hire are reliable if they select the second option for their business.