Electronic Data Interchange is the secure, real-time exchange of documentation between trading partners. Using EDI for invoicing makes business sense: The highly secure, automated billing method saves time, increases accuracy and gets you paid sooner – with less effort from all involved parties.
Using an EDI invoice also gives you better visibility into your organization so you can make better decisions sooner, stopping errors in their tracks. And because it’s totally paperless, EDI invoicing will reduce your carbon footprint and help you save on costly file storage, too.
Electronic Data Interchange, pioneered in the 1960s, is the real-time, server-to-server exchange of business documentation between two or more computer systems. A fully paperless technology, EDI uses standardized formats, or transaction sets, to define the order of information within each document, ensuring understanding between machines. Among these transaction sets is the invoice.
Among the most frequently used EDI invoices is the EDI 810, which follows the X12 standard put in place by the American National Standards Institute. This document, which requests payment from a customer, has many advantages over paper invoicing. We lay out these advantages below.
The EDI Invoice
The EDI 810 enables organizations to seek payment promptly and create a record of every one of their business transactions. But what exactly is it and how does it work? We answer that here.
What is it?
An EDI 810 is a business document sent by a seller to a buyer. It is typically sent in response to an EDI 850, a Purchase Order, as a request for payment once goods have been sent or services have been rendered. It shows the previously agreed-upon charges and seeks payment.
Other EDI invoices include the EDI 210 (the Motor Carrier Freight Details and Invoice), the EDI 880 (the Grocery Products Invoice), and the EDI 894 (the Delivery/Return Base Record).
All are used in lieu of paper – and even other digital formats, such as pdf sent via email – but while these other invoices are used for very specific transactions, the 810 is the most versatile because it can be deployed across order types.
What’s Needed on an EDI Invoice?
Like a paper bill that requests payment for goods or services, an EDI invoice must contain certain information. This includes (but is not limited to):
- The date the invoice was generated
- An invoice number and a unique, three-digit transaction set ID
- Buyer, seller, and remittance information
- Full order details, including product name, unit prices, and quantities
- Any additional charges or discounts/allowances given
- Total amount due
- Accepted payment methods
- Terms of payment (i.e., length of time to pay, amount of monthly installments, if allowed)
- Tax details, where applicable
Advantages of EDI Invoicing
There are several major advantages to using EDI invoicing over paper billing. These are:
Cost
EDI invoicing saves significant money. In fact, companies can save the equivalent of more than $10 per document when using an EDI invoice instead of a paper invoice, according to standards organization GS 1 UK.
Security
The 810 invoice is more secure than paper-based invoicing, faxes or email bills, owing to the protection offered by File Transfer Protocol and HyperText Transfer Protocol, as well as portal-use authentication measures.
Speed
Use of EDI 810 allows for fast reconciliation so sellers see revenue from their sales sooner. Automation removes the need for manual typing, helping stop mistakes that could slow payment.
Accuracy
In addition to offering a significant accuracy boost, EDI automation helps ensure accuracy. Less human intervention coupled with format standardization means information is far more likely to be correct the first time. And EDI provides receipt confirmation, which serves as a functional acknowledgment that the purchaser received the invoice.
Visibility
EDI lets businesses see transaction statuses as they are happening. This lets organizational decision-makers implement fixes sooner in the event problems arise.
Standardization
EDI standards are in play anytime the 810 invoice is used, easing the addition and onboarding of new trading partners. Sharing data is much easier when all organizations speak the same digital “language.”
Sustainability
Using EDI slashes paper use, which means your business can reduce the size of its carbon footprint. Less paper used means less paper kept, so your business can conserve resources (temperature control, lighting) that typically go toward storage.
How to Create an EDI Invoice
Each EDI 810 has both data segments and elements. They are arranged in compliance with the ASCI specifications for that transaction set, and it is this arrangement that streamlines inter-partner communication and sees that there is standardization across all EDI 810 documents.
After receiving an EDI 850 – the buyer’s request for a product, products or services – the seller sends back an EDI 810. After the seller has delivered the asked-for goods or services, the invoice will act as its payment request.
It is important to note here that in order to create EDI documents, EDI-specific software must be used. Packages designed for EDI understand the standardization used for EDI transaction sets and include templates so that your invoices contain all the necessary elements. The software also creates the needed data exchange for the EDI document transmission and translates common file formats into EDI standards.
Once a buyer has received an EDI 810, it will generally send back one of three other EDI documents. These are:
- An EDI 997, a Functional Acknowledgement, which confirms receipt of the EDI 810
- An EDI 864, a Text Message, reporting any business violations the buyer found in the invoice.
- An EDI 820, Remittance Advice, details invoice payment or advise the supplier of any adjustments the buyer has made to the payment amount.
In the event all invoice details are deemed correct, the buyer will move the invoice along to its accounting/receivables department. It will then begin the payment process. The buyer may then send an EDI 820 to the seller, conveying payment information.
Conclusion
There are a number of excellent reasons to choose EDI invoicing for your business. Using specific formats and standards, the 810 speeds transactions, slashes the instance of errors, saves money, helps ensure quick seller payment, and reduces paper use.
