Nobody likes tedious paperwork, but manually processing your invoices isn’t just a hassle; it’s also costing your business time and money.
In a 2022 survey by the Institute of Financial Operations & Leadership, nearly 60% of respondents reported spending more than 10 hours per week on invoicing and supplier payments. That’s at least 500 hours per year. What’s more, 68% of respondents said they manually enter invoices into their accounting software or enterprise resource planning (ERP) system.
Manual workflows increase the risk of errors, drive up labor costs, and leave employees with less time to perform other duties. Fortunately, electronic data interchange (EDI) eliminates the need to use paper invoices, increasing productivity and strengthening your relationships with suppliers. Find out how switching to EDI invoices benefits businesses of all sizes.
What is an EDI invoice, and how does it work?
EDI allows businesses to send information electronically instead of using paper documents. All EDI documents use a standardized format, making it much easier to create invoices, purchase orders, shipping notices, and more. EDI invoices benefit every party involved in an EDI transaction, including customers and suppliers.
An EDI invoice, or an e-invoice, is prepared in a structured format and transmitted electronically. Trading partners must adopt the same EDI standards, ensuring consistency and reducing the risk of errors. These are some of the most common standards:
- Enabling A Global Electronic Market (ebXML)
- Electronic Data Interchange for Administration, Commerce, and Transport (EDIFACT)
- American National Standards Institute (ANSI)
With EDI, trading partners use a managed service or software system to transmit invoices and other business documents. E-invoicing requires no human intervention, freeing up employees to take care of other responsibilities. Automate this task, and your accounts payable clerks can spend more time verifying expense reports.
Note that EDI is for more than just invoicing. Electronic data interchange is the electronic transfer of business documents in a standardized format. EDI invoicing is the use of EDI to transmit invoices among trading partners.
Types of EDI invoices
When you switch to EDI, you gain access to many types of invoices, making business transactions easier. Each type of invoice has its own EDI number to distinguish it from others. Here are some common examples:
- EDI 210 — Logistics Invoice: Commercial carriers use EDI 210 to send billing details to manufacturers, distributors, and other shippers.
- EDI 422 — Equipment Order: Shippers and rail carriers use EDI 422 to order transportation-related equipment.
- EDI 810 — Invoice: Sellers use EDI 810 to invoice their customers. This document indicates the amount due and asks the customer to pay according to previously agreed-upon terms. For example, the EDI 810 may request that the buyer remit payment within 90 days.
- EDI 820 — Payment Order: EDI 820, also known as a Remittance Advice document, transmits data between buyers and sellers. It’s usually used to alert sellers to payment adjustments or confirm payment details.
- EDI 850 — Purchase Order: Companies use EDI 850 to buy goods and services. This EDI document usually contains item numbers, prices, and quantities, along with payment terms and shipping details.
- EDI 880 — Grocery Invoice: EDI 880 is specifically for grocery suppliers. Depending on the supplier’s needs, the invoice may contain a list of goods, unit prices, payment terms, and the total amount due upon receipt.
Advantages of EDI invoicing
Switching from paper to electronic invoices has many benefits for organizations of all sizes. Consider an EDI service for the following benefits:
Faster processing times
EDI automation leads to faster processing times, shortening the sales cycle. When you use paper invoices, you must print each invoice, mail it, and wait for the recipient’s payment to arrive. EDI invoicing eliminates these steps, potentially improving your cash flow.
EDI uses structured data and standardized formats to streamline communication among trading partners. If you have 20 trading partners, each with its own invoice format, it would be tough for your employees to find important information. Standardizing everything reduces the risk that something will get lost in translation.
Processing paper invoices takes time that your employees could use to add value to the business. It’s a repetitive task, which may lead to lower engagement and higher rates of burnout. EDI invoices increase output without requiring additional resources.
Reduced administrative workload
When you use paper invoices, employees have to spend time tracking down missing documents, contacting trading partners for clarification, and trying to decipher unusual invoice formats. Switching to EDI invoices eliminates these time wasters, reducing the administrative workload.
The more manual processes you have, the higher the risk of human error. Paper invoices increase the likelihood of typos, incorrect payment terms or order quantities, and mathematical errors. Electronic invoicing improves accuracy by automating these procedures.
Paper invoicing is fraught with potential problems, such as data entry errors and late deliveries. If you switch to EDI invoicing, your invoices will always be sent on time. E-invoicing also reduces time needed to respond to supplier invoices, strengthening your relationships with business partners.
EDI software uses strict security protocols, preserving data integrity and giving you extra peace of mind. It’s also possible to trace data exchanges, making it easier to identify potential security issues.
Reduced paper consumption
If your company has internal sustainability standards, EDI invoices are an excellent way to reduce your carbon footprint and ecological impact. You can’t eliminate paper entirely, but you can save reams of it every year with e-invoicing.
Elements of an EDI invoice
Every EDI invoice includes these components:
- Transaction set: A transaction set is essentially a document in EDI. It consists of a data element, a segment, and an envelope. The data element is a distinct piece of information, such as the price of an item or the number of items ordered. Multiple data elements make up a segment. An envelope allows you to send an EDI document to another party.
- Order details: Every e-invoice contains information on the buyer and seller, such as where each company is located, along with unit prices, quantities ordered, and the total amount due.
- Payment terms: You can also include agreed-upon payment terms and a list of accepted payment methods.
3 steps to develop an EDI 810 document
Creating e-invoices is a relatively simple process. To develop an EDI 810 invoice, follow these steps:
1. Data collection
During this step, you collect data related to a specific transaction. Most companies have multiple data sources, such as spreadsheets, internal databases, and procurement software. If you’ve relied on manual processes in the past, you may need to enter data from paper files.
2. Data translation
After you collect data, you need to put it in a structured format. Translation is the process of converting your raw data into a format that complies with EDI standards. You may need to translate the data into multiple formats.
3. Data transmission
Finally, you transmit the e-invoice to the buyer. When the invoice arrives at its destination, the standardized format makes it easier for the buyer to understand what they need to do.
EDI invoices vs. traditional invoices
EDI invoices clearly hold many advantages over traditional invoices. Here’s how the two stack up against each other.
Risk of data entry errors
With paper invoices, employees have to enter data manually. It’s easy to mix up numbers, make typos, or put information on the wrong line of the form. EDI invoicing is an automated process, so it requires limited human intervention. Therefore, you don’t have to worry about data entry errors.
Paper invoices take up a lot of space, especially if they’ve been piling up for years. Many companies have to store past invoices in cluttered file rooms or pay for off-site storage. E-invoicing eliminates these inconveniences. You can store an e-invoice in your database and retrieve it any time, all without making employees search through overstuffed file folders.
It takes time to print and mail paper invoices, which may delay payment. EDI billing eliminates these time-consuming steps, shortening the procurement cycle.
If you use paper invoices, you have to spend money on envelopes and stamps. You may also require additional employees to process invoices promptly. Switching to EDI invoices reduces or eliminates some of these costs, strengthening your company’s financial position.
Speed up your procurement cycle with Orderful
EDI invoicing has many benefits for trading partners, including enhanced communication and shorter procurement cycles. With Orderful, it’s easy to take advantage of these benefits. Our cloud-based system has modern APIs, removing all the guesswork from EDI integration. Call (855) 965-1887 to learn more from one of our supply chain experts.