Managing invoices is an essential part of running a successful business. But finding the time to create, send and track invoices can be a challenge – especially for small companies.
Automating invoicing can reduce late payments, but only 17% of small firms have automated their accounts receivables, according to a PYMNTS study of 100 US-based chief financial officers (CFOs).¹
One way to make invoicing more efficient is by using EDI invoicing. What is EDI invoicing, and how does it work? What are the benefits and challenges of this approach?
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Introduction to EDI Invoicing
Electronic data interchange (EDI) invoicing is a method of issuing invoices in a standardized electronic format. It streamlines the process by removing the need for manual data entry and mailing paper invoices.
An EDI invoice differs from a PDF invoice or electronic invoice (e-invoice), as it contains specific, well-structured information.
This means it can always be read by accounting software, whereas the content of paper or PDF invoices may not always be read correctly. This can increase efficiency, ensuring that the invoice is handled correctly and on schedule.
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The unique ID assigned to the transaction set allows a computer to identify the document.
What is the difference between electronic invoicing and EDI? While both EDI invoices and e-invoices are transmitted electronically, they differ in their scope. E-invoicing primarily involves sending invoices via email or online platforms, while EDI invoicing involves electronic document exchange through integrated business systems.
How EDI invoicing works
EDI invoicing relies on a series of well-defined processes and technologies to ensure accurate and secure document exchange.
EDI invoicing involves the exchange of electronic messages containing invoice information. These messages are routed through communication networks using established protocols. These protocols govern the rules and methods for transmitting data between systems. Common examples include AS2 (Applicability Statement 2) and FTP (File Transfer Protocol).
Standardized formats ensure consistency in EDI invoicing data quality. Prominent standards include EDIFACT (Electronic Data Interchange for Administration, Commerce, and Transport) and the ANSI X12 standard developed by the American National Standards Institute (ANSI). This organization regulates EDI documents in the US.
Invoices are created and exchanged using EDI invoicing software or an outsourced EDI service provider. For example, FreshBooks invoicing software includes templates and tracking options for EDI invoices.
The recipient must also be able to receive EDI invoices, so if they don’t have compatible software, a business intermediary may be needed to facilitate the transaction.
Benefits of EDI invoicing
The adoption of EDI invoicing offers several advantages that contribute to enhanced business operations.
- Efficiency and speed. Digital automation accelerates the invoicing process, reducing cycle times and freeing up resources for other important tasks.
- Accuracy and error reduction. Automating invoice creation minimizes data entry errors, increasing accuracy in processing.
- Cost savings. Reducing paper usage, postage costs and manual data entry work contribute to financial savings.
- Improved data security and privacy. EDI invoicing uses encryption and secure protocols, ensuring that sensitive business information remains confidential during transmission.
- Easier troubleshooting. By entering and storing information electronically, it is easy to access and refer back to if things go wrong.
EDI invoicing challenges and solutions
While there are clear EDI invoicing benefits in terms of efficiency and cost savings, challenges can arise that you should be aware of before implementation:
- EDI standards variations. Different industries may use different EDI standards, requiring careful mapping and transformation.
- Data synchronization issues. If systems are not correctly aligned between suppliers and customers data may not be exchanged correctly.
- Partner requirements. Meeting the unique needs and preferences of each supplier or customer can be complex.
- Maintaining compliance. Staying up-to-date with evolving EDI standards and regulations is essential.
Key components of EDI invoicing
There are several crucial parts to implementing an EDI invoicing system successfully:
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Implementing EDI invoicing
To adopt EDI invoicing for your business, you need to take make sure to have the right infrastructure and systems in place so that the process runs smoothly.
Before you start, you need to assess the needs and readiness of your business. Evaluate the organization's requirements and infrastructure to determine whether introducing EDI integration is feasible.
Select a reliable software or service provider with expertise in EDI invoicing. You’ll need to integrate your EDI invoicing processes with your enterprise resource planning (ERP) and accounting systems to ensure data flows between them.
Once the systems are in place, it’s essential to carry out testing and validation to ensure that data is exchanged correctly before full-scale implementation.
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Future trends in EDI invoicing
The adoption of new technologies is likely to influence how EDI invoicing works in the future.
Artificial intelligence and machine learning have the potential to enhance data processing and decision-making through predictive analytics.
The development of blockchain technology also shows promise, as its secure and transparent nature could revolutionize data integrity and auditing.
Mobile integration will enable real-time access to invoicing data, enhancing flexibility and responsiveness.
Conclusion - Can EDI invoicing benefit your business?
Adopting EDI invoicing can help businesses to increase the efficiency, accuracy, and data security of their invoice processes, saving time and money.
Not only can EDI invoices potentially streamline business processes, but they can limit the number of unpaid invoices – increasing cash flow.
If you run a small business and are looking to improve the invoicing and payments process, consider opening an account with Wise Business. Wise can help to receive international invoice payments and pay outgoing invoices with ease.
Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in 40+ currencies. You can also get 9 major currency account details for a one-off fee to receive overseas payments like a local.
Open a Wise Business account online
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Sources:
How Automation Reduces Receivables Delay - July 2023 | PYMNTS.com
All sources checked September 2023.
*Please see terms of use and product availability for your region or visit Wise fees and pricing for the most up to date pricing and fee information. This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional. We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
