Electronic data interchange (EDI) is the virtual inter-company exchange of business documents and information in a specific format using computers. The software technology allows companies to transmit documents containing critical commercial data to their trading partners. These generally include customer invoices, purchase orders, advance shipping orders, booking requests, customs, and payment details. However, the companies first decide on these secure EDI communication protocols for their systems to work. Depending on the industrial sector within which these corporate enterprises conduct their commercial activities, they choose:
- Applicability Statement 2 (AS2),
- Hypertext Transfer Protocol (HTTP),
- ODETTE File Transfer Protocol (OFTPS 2), or
- Representational State Transfer Application Programming Interface (REST API)
What is an EDI invoice?
EDI invoicing refers to the process of receiving and sending business invoices using electronic data interchange. These documents are assigned the transaction code 810 if the companies transmitting adopt the ANSI ASC X 12 standards. The software technology helps these corporate enterprises to revamp, automate and streamline their entire billing system. The information which a typical EDI invoice contains is:
- Shipping details
- Name of the customer and its billing address,
- A unique EDI invoice number,
- The date on which the transaction takes places,
- Description, stock-keeping unit, and quantities of the products the customers purchase from the companies,
- The price per unit of each of the products,
- Discounts and taxes applicable,
- The total price payable by the customers, and
How does EDI invoicing work?
The EDI invoice system companies operate to issue sales bills to customers works in the following manner:
- The companies send customers a purchase order in the transaction code 850 formats.
- Their EDI software solution receives the document and creates a corresponding data file with its mapping module,
- The solution then sends the compatible data file to the companies’ enterprise resource planning (ERP) platform,
- The ERP platform extracts the key metadata of the file, validates it, and checks its inventory modules,
- The ERP platform then sends a notification to the warehousing department and generates an invoice,
- The EDI software receives the ERP customer invoice and generates its EDI 810 transaction code equivalent, and
- The EDI software solution finally dispatches the EDI 810 invoice to the customers.
The advantages of installing and operating an EDI billing system for companies are as follows:
- Eliminates the operating costs relating to printing, posting, and storage of paper invoices,
- Significantly reduces clerical errors common to manual processing of documents like illegible handwriting,
- Enhances business cycle speeds transmitting the invoices to receivers in minutes,
- The secure communication protocols ensure the customer invoices are not lost in transit, and
- Promotes a paperless working environment
Implementing a software platform that accurately processes an EDI invoice allows companies to revamp their billing procedure. However, the EDI software system they choose to streamline their billing process should meet their specific needs. The platform should also be compatible enough to integrate into the IT infrastructure of the company. Moreover, it should be user-friendly to operate and compatible with the other business application the companies use. The total cost of acquiring the system should even be within their budget allocation for the company to get optimal value for money.