Using e-invoices streamlines an organization’s invoicing processes, improves its cash flow and boosts collaboration between trading partners. The following sections are a must-read for any company seeking to transform its business operations for the better.
Invoicing is a critical part of any business. Traditionally suppliers and buyers have relied on the physical exchange of paper documents to ensure payment for goods and services, but in recent years electronic data interchange invoicing has become more popular. In the below sections, we discuss some of the main benefits of EDI invoicing over its paper-based counterpart.
Traditional vs EDI Invoices
A traditional invoice and an EDI or e-invoice have the same aim – to obtain payment from a buyer – so they contain much of the same information. However, EDI invoicing makes for significantly easier procurement for the following reasons:
- Processing time: Paper-based invoicing can be a time-consuming process, with physical documents often taking days or even weeks to be received, processed and paid by the buyer. On the other hand, an EDI invoice can be transmitted and received in real time.
- Cost: Paper invoicing can be expensive owing to costs associated with printing, delivery and manual data entry. EDI invoicing requires none of this, which saves both supplier and buyer money.
- Format and delivery: With traditional invoicing, a seller has to create and deliver a physical invoice to the buyer, either via mail or in person. EDI invoicing involves the digital, near-instantaneous sending and receipt of an electronic invoice using a standardized format via a secure network.
- Accuracy: Paper invoices involve the manual entering of information by human beings, so they’re prone to error, including missing information, transposed numerals and the like. Because it uses standardized formats and automated data entry, EDI invoicing reduces the likelihood of mistakes.
- Visibility and tracking: Old-fashioned invoicing can make tracking the status of payment difficult for trading partners, creating the potential for delays and disputes over money. With EDI invoicing, both buyers and sellers can see the status of any invoice at any time. EDI invoices can also be stored easily and without the hassle and added expense of paper filing and storage systems, making record keeping easy.
What’s in an EDI Invoice?
An EDI invoice, the most common of which is an EDI 810 in the United States, contains specific data in a standardized format. This configuration uniformity makes it easy for all trading-partner computer systems to understand and process.
An 810 is generally sent in response to an EDI 850, a purchase order, and requests payment once products have shipped or services have been rendered. A supplier’s EDI solution will generate an 810 that comprises:
- The data element: The data element refers to a single piece of information within every EDI transaction set. Data elements include a buyer’s city, state and country, the number of products being purchased, the unit price and other related information.
- The segment: Multiple data elements in a group together make up a segment. The buyer’s address and the purchase details, for example, are order segments.
- The envelope: EDI envelopes are similar to the paper envelopes that enclose delivered paper invoices. Each one consists of a header segment, a trailer segment and the EDI data. The header segment, the first in an EDI envelope, contains a control number that identifies the envelope. The trailer segment is the last segment in an envelope, and contains a unique control number as well as the number of segments in the envelope.
Other information that might be contained in an 810 are payment terms and any agreed-upon discounts.
Once an EDI invoice has been received, the buyer may send one of the following transaction sets in response:
- EDI 997: Functional Acknowledgement: This confirms receipt of the EDI 810.
- EDI 820: Remittance Advice: This details payment of the invoice.
- EDI 864: Text Message: This reports any business violations the buyer’ system has detected in the invoice.
3 Advantages of EDI Invoicing
There are several major benefits to using an e-invoice instead of a traditional invoice. They are:
Speed
EDI invoices are exchanged in real time, allowing for quicker processing and payment. They involve standardized, automated electronic exchange, so no error-prone manual data entry is needed, which speeds processes.
While traditional invoicing necessitates the physical exchange of paper files, which can lead to significant lag time, EDI invoicing is paperless and nearly instantaneous, so it saves days, sometimes even weeks or months.
EDI invoicing also helps trading partners collaborate better by creating fewer opportunities for disputes and allowing for faster resolution if disagreements do arise.
Accuracy
As mentioned above, e-invoices remove the need to have human workers entering information, cutting down dramatically on the number of errors. More accurate information helps ensure prompt payment.
Because EDI uses standardized formats and protocols, all parties involved in a transaction use the same format for exchanging invoice data. This means far less risk of error caused by erroneous information or incompatible formats.
E-invoicing also includes validation rules that check invoice data for mistakes and inconsistencies, which helps identify potential errors before an invoice is sent.
Cost Savings
In addition to getting sellers paid faster, EDI invoicing can slash the costs associated with traditional invoicing. They require no paper, postage or ink, so those costs are eliminated totally. They reduce the need for manual data entry, which means fewer often-expensive employee hours spent on requests for payment.
Because EDI invoices are inherently more accurate than paper-based methods, they cut down companies’ chances of incurring what can be costly mistake-related fees and chargebacks. Thief facilitation of real-time data exchange saves even more time, which can lead to lower labor costs and a more streamlined invoicing process overall.
Additional Benefits
EDI invoicing also protects sensitive information and curtails the risk of data breaches and fraud because it uses secure networks to send and receive data. And it gives trading partners greater visibility into the full invoicing process because both suppliers and buyers can track the status of any invoice in real time. (This has the added boon of maintaining good relationships between trading partners.)
Conclusion
EDI invoicing offers organizations a range of benefits over traditional invoicing methods. It provides faster processing, reduced costs, increased accuracy, better supply-chain visibility and enhanced security. By using it, businesses will see reductions in errors, disputes and delays and improved cash flow, putting them in better financial positions. Those seeking ways to stay competitive in the marketplace should look to EDI invoicing.
