EDI Invoice: A Complete Guide to Modern Invoicing

Are you tired of the inefficiencies and errors associated with manual invoicing? An EDI invoice is the right solution. Implementing an EDI invoice system changes the entire invoicing process by enabling effortless and automated transactions between businesses.

The invoice digitization process comprises a “computer-to-computer exchange” where two parties involved in the acquisition process send these business documents to each other.

This invoice automation results in reduced mistakes, quicker payment cycles, and converting hours of manual data entry into rapid electronic exchanges. Using EDI invoices saves the valuable time and resources of your business and enhances overall efficiency and profitability.

Want to know more about EDI invoices and how does it work?

Let’s start.

What are EDI Invoices?

An EDI invoice is a digital version of an invoice or a paper invoice. Generally, sellers send these invoices to the buyers to request payments for the products delivered to them.

You can opt for EDI invoices instead of paper-based invoices. These invoices are capable of replacing other forms of electronic invoices, such as PDFs or documents. Additionally, using a free invoice maker simplifies the transition of switching from paper to digital invoices.

Last but not least, with EDI, you get your hands on a more effective invoicing process, which ensures that the invoices are correct and everything is going as per the plan. As per sources, the EDI market is projected to reach US$ 65.99 billion by 2031 and is also expected to register a CAGR of 10.3% during 2023–2031. This growth projection highlights the increasing adoption of EDI as businesses recognize its efficiency and long-term benefits.

What are the Important Components of an EDI Invoice?

Here are some of the 6 most essential components of an EDI invoice, as mentioned below:

1. Invoice header: Consists of an invoice transaction set, a unique three-digit number known as transaction set ID. Additionally, it contains the invoice number, date, and identification details of the buyer and seller.
2. Line item details: Add every product or service billed along with the quantities, descriptions, unit prices, and final amount.
3. Terms of sale or payment terms: Mentions the payment conditions, due dates, and discounts for early payment.
4. Tax information: Add applicable taxes, tax rates, and total tax amount.
5. Shipping information: Provide important information like shipping methods, delivery dates, and shipping addresses.
6. EDI envelopes: These digital wrappers package the invoice data along with the sender and receiver information to ensure correct routing.

What are the Different Types of EDI Invoices?

EDI invoices streamline the overall billing process by enabling the electronic exchange of invoice information between trading partners. Different types of EDI invoices cater to specific industries and transaction requirements.

Here are some of the most common EDI invoice types:

1. Standard invoice (EDI 810)

This is one of the most common EDI 810 invoice types for billing goods or services offered. It comprises important details like prices, quantities, tax amounts, item descriptions, and payment terms.

2. Credit/debit adjustment invoice (EDI 812)

This invoice is meant to communicate various adjustments like refunds, credits, and additional charges after the issuance of the original invoice.

3. Purchase order acknowledgment Invoice (EDI 855)

This invoice acts as an acknowledgment of a purchase order along with the prices, product details, and delivery information.

4. Grocery products invoice (EDI 880)

This invoice is customized for the grocery industry to address the billing details for grocery products between the suppliers and the buyers.

5. Advance shipment notification (ASN) linked invoice (EDI 856)

This invoice comprises the shipment details and the advance shipping notification for better traceability in the supply chain.

6. Delivery/return base record (EDI 894)

With these invoices, you can let the direct store delivery vendors communicate the details of a direct store delivery, to be used during the check-in procedure.

7. Motor carrier freight details and invoice (EDI 210)

This invoice is generally used by commercial carriers to send billing details to the distributors, manufacturers, and other shippers, with detailed freight charges for shipment.

How Does EDI Invoice Work?

The American National Standards Institute (ANSI) situated in the U.S. has created the X12 standard and also manages EDI documents. Generally, EDI invoices follow this numbering system.

Here’s a detailed breakdown of the process:

1. Invoice creation:

The supplier’s Enterprise Resource Planning (ERP) system or sales department creates an invoice containing transaction details such as item descriptions, quantities, prices, and payment terms.

2. EDI conversion:

The seller’s sales department generates an invoice in a standardized EDI format (e.g., EDI 810) by using translation software. It ensures the compatibility among different systems.

3. Transmission:

The formatted EDI invoice is transmitted to the customer’s EDI system or their specific EDI provider. This is performed through different communication channels, such as Applicability Statement 2 (AS2), Secure FTP, or a Value-Added Network (VAN). This acts as an intermediary to facilitate secure data exchange.

4. Data reception and extraction:

The customer’s EDI solution extracts the important invoice data from the EDI message and arranges it for integration.

5. System integration:

Once the invoice data is extracted, it is seamlessly integrated into the customer’s internal management or accounting system.

6. Purchase-to-Pay (P2P) reconciliation:

The customers can reconcile the invoice data with corresponding purchase orders (POs) and delivery records within their Purchase-to-Pay (P2P) system. This process is performed to verify accuracy before approving payment.

7. Electronic archiving:

The final invoice is stored in an Electronic Archiving System (EAS), also the French termed as Système d’Archivage Electronique – SAE. This system ensures data integrity and compliance with legal retention requirements, typically for 7 to 10 years in the U.S.

What are the Advantages of EDI Invoices?

Switching to EDI invoices has a handful of benefits for all organizations, irrespective of their sizes. Here are some of the 7 main advantages of EDI invoices as listed below:

Cost savings

Eliminating paper-based processes and opting for EDI invoices lowers administrative expenses and minimizes manual errors. This shift to EDI invoices leads to significant cost reductions.

Faster processing times

The automation of data exchange lessens the time to process an invoice which leads to quicker approvals and payments. This eventually results in improved cash flow and operational efficiency.

Improved accuracy

The automation in invoices reduces human error and ensures accurate invoicing and fewer disputes between trading partners.

Enhanced security

With EDI systems, you get secured data transmission to protect sensitive financial information from unauthorized access.

Increased efficiency

EDI invoices streamline the overall invoicing process by reducing the administrative workloads. With this, the employees can focus on priority tasks and boost productivity.

Better supply chain visibility

EDI provides real-time tracking and transparency of transactions, enhancing supply chain management and decision-making.

Environmental benefits

Electronic invoicing leads to a reduction in paper usage, which increases the efforts towards environmental sustainability efforts.

What are the Steps to Generate an EDI 810 Document?

To generate an EDI document, specifically an EDI invoice, you need to follow the steps mentioned below:

1. Data collection

This step is all about collecting important information about the transaction held between a buyer and the seller. The data collection process is as follows:

• Using procurement software with all the important information regarding purchase orders and requisitions.
• Changing the existing documents into standardized files.
• Converting or formatting digital reports into data files.
• Storing the important data in databases or spreadsheets.

Data collection is generally performed manually in a traditional setting where the employees need to add information regarding a transaction.

2. Translation

The data collection performed in the first step doesn’t follow any specific structure and therefore, needs translation. The next thing a seller needs to do is format all the data recovered from the sources to match the mentioned standards. The best way to do this is to make use of translation software. Here are a few pointers to know:

• Make use of translation software: There are various types of EDI standards, such as ANSI, EDIFACT, ebXML, and RADACOMS. All of these EDI standards are power-packed with different versions too. The EDI invoice needs to be translated into a specific format as per the agreement between the buyer and the seller.
• Work with an EDI service provider: Another way to translate documents is to use an EDI service provider. This consists of sending essential information about the transaction to the third party. They will be handling the formatting and subsequent standardization.

3. Transmission

Last, but not least, send out the EDI invoices to the buyer and receive the unpaid dues. One can receive these dues in three ways. However, the third method of carrying out this transaction comprises an amalgamation of the first two methods.

This first method involves the use of internet-draft security standards, also known as AS2. It allows businesses to carry out transactions in a secure manner. It is one of the most used methods by businesses in their B2B transactions, along with major retailers.

Another important pathway involves the EDI mentioned above service provider, who will also double as a network provider in this case. To ensure this transmission, a seller will need to contact these providers with a secured communications protocol to make the transaction required.

Finally, the EDI invoice is created and transmitted to the receiving party to complete the transaction. A buyer who gets the EDI document will perform the reverse process after receiving it. Once done, the EDI document will be translated from a standard format into an internal format.

Despite the growing advantages of EDI, many businesses continue to face hurdles and aren’t fully prepared to transition. Therefore, take a closer look at the differences to make an insightful decision for your business.

Traditional Invoices vs. EDI Invoices: Key Differences

Here are some of the major differences between traditional and EDI invoices.

Aspect	Traditional Invoices	EDI Invoices
Format	Paper-based or PDF files sent via email or post.	Standardized digital format compatible with EDI systems.
Delivery method	Sent manually through post, fax, or email.	Transmitted electronically between systems via EDI protocols.
Processing time	Time-intensive, requiring manual handling and data entry.	Automated, reducing processing time significantly.
Error rate	High due to manual data entry and human errors.	Low, as data is transmitted directly without manual intervention.
Cost efficiency	Incur costs for printing, postage, and storage.	Cost-effective due to reduced manual work and no physical resources.
Tracking & auditing	Difficult to track and prone to mismanagement.	Easier tracking and auditing with automated records.
Scalability	Limited scalability for high-volume transactions.	Highly scalable, handling bulk transactions seamlessly.
Environmental impact	High, with reliance on paper and physical resources.	Eco-friendly with reduced paper usage.
Compliance	Often requires manual checks to meet regulations.	Ensures compliance with standards like ANSI X12 or EDIFACT.

Streamline Your Business Operations with EDI Invoicing

Opting for Electronic Data Interchange (EDI) invoicing provides businesses with a transformative way to manage invoices. With automation of invoice processing, EDI improves efficiency, reduces errors, and lowers operational costs. The shift to electronic invoicing streamlines the workflow and also strengthens collaboration between the parties involved.

Industries such as retail, manufacturing, healthcare, logistics, and e-commerce benefit the most from EDI invoicing. Integrating EDI invoicing ensures your business remains competitive and responsive to market demands. Making the best use of this technology is a smart strategic move toward operational excellence and long-term success.