Businesses are increasingly looking for electronic solutions to manage their day-to-day operations. The modern commerce landscape is highly geared towards efficiency, transparency, and visibility. Invoice processing, being a major business component, cannot stay out of this trend.
Electronically sending invoice documents with EDI is a profound incentive that pushes most businesses dealing with large-scale order transactions to be more reliable, transparent, scalable, and effective for their consumers.
But what exactly is EDI invoicing, and how does it help businesses streamline their operations? Let us figure out.
Electronic Data Interchange means sending and receiving documents electronically in a standard format, and invoicing means sending and receiving invoices. So, EDI invoicing combines these two, where invoice documents are transformed into a standard EDI format and exchanged between two computer systems.
EDI invoices are exchanged between a buyer and seller, where the seller sends the invoice document to the buyer after purchasing products.
In an EDI transaction, the buyer orders items of purchase through the purchase order, and the seller then sends the items requested to the buyer with the shipping notifications. After the buyer confirms the items requested have been delivered, the seller then sends an Invoice for the purchased items.
It is important to remember that all these exchanges happen computer-to-computer automatically. This means that little to no manual input is needed.
The use of paper invoices through post mail or other types of invoices (e.g., PDF invoices through emails) is eliminated or streamlined with EDI invoicing.
While there are several EDI invoicing documents, the most extensively used, by far, is the EDI 810, which is specifically meant for invoicing.
Also read: A Detailed Guide On EDI Documents
EDI 810 is the invoice document commonly exchanged between businesses regarding invoice transactions. The 810 is an ANSI standard designated by the American National Standards Institute. There are also other invoices like INVOIC from the EDIFACT standard, used primarily in Europe and for international invoicing. However, the EDI 810 is still the most commonly referred to document when it comes to EDI invoices.
Just like any other EDI document, the EDI 810 also contains the data, segments, and envelopes. The document also contains the items shipped, the address of the recipient, item amounts, and other financial data pertaining to the specific purchases in the business transactions.
Let us first take a look at a normal invoice document, which looks something like this:
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INVOICE |
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Company Name, C Address, A Contact Number: 0001 |
Invoice Number: 12345 Date: 2/18/2025 |
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Bill To: Company ABC Street 123, City XYZ Country: US |
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Product Description |
Quantity |
Amount |
Total |
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Product: Product-Name Description: Product-Description |
10 |
$200 |
$2000 |
Now, this document, when translated into the EDI 810 format, will be:
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ISA*00* *00* *ZZ*SENDER_ID *ZZ*RECEIVER_ID *250218*1234*U*00401*000000001*0*P*>~ GS*IN*SENDER_ID*RECEIVER_ID*20250218*1234*1*X*004010~ ST*810*0001~ BIG*20250218*12345*C*0001~ N1*BY*Company ABC~ N3*Street 123~ N4*City XYZ**US~ IT1*1*10*EA*200*USD*BP*Product-Name~ PID*F****Product-Description~ TDS*200000~ SE*8*0001~ GE*1*1~ IEA*1*000000001~ |
Here is the breakdown of the key segments of the EDI invoice document above.
Identifies the sender and receiver, version, and transaction control details.
Example: ISA*00* *00* *ZZ*SENDER_ID *ZZ*RECEIVER_ID *250218*1234*U*00401*000000001*0*P*>~
Groups all related transactions under a functional group for processing.
Example: GS*IN*SENDER_ID*RECEIVER_ID*20250218*1234*1*X*004010~
Marks the beginning of the invoice transaction.
Example: ST*810*0001~
Includes the invoice date, invoice number, and purchase order reference if applicable.
Example: BIG*20250218*12345*C*0001~
Identifies the buyer (Company ABC) and their address.
Example:
N1*BY*Company ABC~ (Buyer)
N3*Street 123~ (Street Address)
N4*City XYZ**US~ (City, State, Country)
Includes item number, quantity, unit price, and unit of measure.
Example: IT1*1*10*EA*200*USD*BP*Product-Name~
Describes the product.
Example: PID*F****Product-Description~
The total invoice amount is in cents (e.g., $2000.00 is represented as 200000).
Example: TDS*200000~
Indicates the number of segments in the transaction.
Example: SE*8*0001~
Marks the end of the functional group and interchange.
Example:
GE*1*1~
IEA*1*000000001~
EDI invoices, like any other EDI documents, can be generated and transmitted through 2 ways. One is to use in-house staff and technology, and another is to use an EDI service provider.
While there may be differences between the operations of these two methods, the generation and transmission of invoice documents are pretty much the same everywhere.
Here is how it works.
1. Data Extraction and Gathering
Data from all your internal business systems (ERP, CRM, Accounting, WMS, etc.) are extracted or collected and gathered together. The data involves product data, procurement data, or other necessary data that helps generate an invoice. They can be collected through software or, in some cases, manually by individuals from different departments, although they are rare.
2. Data translation
After gathering the data, it is time to translate the data into the invoice. This step involves the process of mapping the data fields, converting raw data into a standardized EDI format, and making it ready for transmission. The EDI developers, in conjunction with the software application, are primarily responsible for this step.
3. Testing and Validation
After translating the data, it is time to test whether the EDI document is properly formatted or not. As 810 is an important document dealing with finances, this is an important step where even slight misalignment or incorrection may trigger a rejection from the recipient. Moreover, trading partners may have their requirements for the EDI invoices, which also need to be met. Testing the EDI document before the transmission helps negate these issues and maintains a smooth operation.
4. Transmission of the EDI Invoice document
This is the final process. Here, the EDI 810 invoice is transferred to the receiver system. You can use the internet to directly transmit the invoice document with the help of security protocols like AS2. Or, you can opt for the more traditional method of using a VAN (Value Added Network) to send the invoice.
Do note that EDI providers like Commerce Network operate a SAAS application that lets you easily and effectively generate and send your invoice documents to another system. Moreover, Commerce Network also provides a dedicated VAN service to clients to securely transmit their EDI 810 documents if they prefer to do so.
Contact Commerce Network To Implement EDI Invoicing
Using an EDI invoice has both advantages and disadvantages. Here are some of them explained.
Speed & Efficiency
EDI invoicing eliminates manual data entry, reducing processing time from days to minutes. This ensures faster payment cycles and improved cash flow for businesses.
Example: A manufacturing company sends invoices to its suppliers via EDI instead of mailing paper invoices. As a result, suppliers receive and process payments within 24 hours instead of waiting 7–10 days for postal delivery and manual approval.
Accuracy & Error Reduction
Since invoices are transmitted electronically, the risk of human errors like miskeying amounts or incorrect customer details is minimized. Automated validation also helps detect discrepancies before submission.
Example: A healthcare distributor used to receive frequent chargeback claims due to incorrect pricing and missing details on paper invoices. After switching to EDI, automated validation ensures that all required fields are populated, reducing disputes by 90%.
Cost Savings
By eliminating paper, printing, and mailing costs, companies save money on invoice processing. Reduced labor costs and fewer disputes also contribute to significant financial benefits.
Example: A retail chain that processes 100,000 invoices annually switched from paper-based invoicing to EDI. This saved them over $500,000 per year by eliminating printing, postage, and labor costs associated with manual data entry.
Compliance & Standardization
EDI follows industry standards, ensuring that invoices meet regulatory and trading partner requirements. This reduces compliance risks and simplifies audits or record-keeping.
Example: A government contractor must submit invoices in a specific EDI format to comply with federal procurement requirements. Using EDI, the contractor ensures every invoice meets government standards, avoiding penalties and payment delays.
Initial Setup Costs
Implementing EDI requires software, integration, and training, which can be expensive. Small businesses may find the upfront investment challenging.
Example: A small logistics company wants to start using EDI for invoicing but finds the cost of implementation too high. They need to invest in an EDI solution, train staff, and integrate it with their existing accounting software, which delays adoption.
Complexity & Maintenance
EDI systems require continuous monitoring and updates to stay compatible with trading partners. Technical issues or changes in standards may require ongoing adjustments.
Example: A global electronics supplier has to comply with different EDI standards for each of its trading partners. This requires constant updates and IT support, leading to increased operational complexity and additional costs.
Limited Flexibility
EDI invoices follow strict formatting rules, leaving little room for customization. Businesses that require unique invoice layouts may find the structure restrictive.
Example: A service-based business wants to add custom notes and images to their invoices for a personalized touch. However, EDI’s rigid format prevents them from including such non-standard elements, forcing them to use alternative methods for customer communication.
Dependence on Technology
A system failure, internet outage, or software issue can disrupt invoice processing. Companies must have backup plans to avoid payment delays.
Example: A large wholesaler experiences a server outage that disrupts its EDI invoicing system. Since all invoices are transmitted electronically, no invoices can be sent until the system is restored, causing delays in payments and order fulfillment.
The solution to most of these drawbacks is using a flexible, tailored-made, and robust EDI service from a provider like Commerce Network.
We provide a solution for all business sizes. Our solutions are also scalable and are used in a cloud environment to give clients real-time visibility of their EDI document exchange, including the exchange of invoices. This also helps identify and resolve errors promptly and ensures efficient business operations for businesses.
When talking about EDI invoicing, you will most definitely come across E-Invoicing as well. As EDI Invoicing is a part of E-Invoicing, it makes sense that these two terms are sometimes used in correlation as both include sending and receiving invoices electronically.
No, EDI invoicing means using EDI to send the invoice documents. At the same time, E-invoicing is a broad term encompassing all aspects of sending and receiving invoice documents in an electronic format.
In E-invoicing, you can send invoices through emails, scan a paper invoice, and then send them to the recipient, etc. While EDI invoicing requires you to send your invoices through specialized software or software providers in a specific manner (i.e., through VANs or over the internet with AS2 and other security protocols)
Moreover, there are also several other differences between these two methods of sending invoices, like standardization, cost, security, scope, etc.
EDI invoicing is far more standardized than e-invoicing. So, for a business dealing with other businesses and government agencies in a B2B and B2G environment, it is critical to make sure that a single standard format is followed in transactions.
In the case of B2G contractors, EDI is not a choice; it is a mandate. This means all government vendors must include EDI invoicing to process payments through government contracting.
Even without official regulations, EDI invoicing is still more important when dealing with orders from multiple channels in a large supply chain and trading partner network.
Consider this: you are a business selling a certain product. You buy from the manufacturer and sell to a reseller in the form of another business.
Now consider this: there are 10 similar kinds of business in your supply chain network with more manufacturers and distributors. In this case, sending and receiving invoices through e-invoicing means that all sorts of invoices in different formats are coming and need to be processed.
This makes it extremely inefficient for the whole supply chain to operate smoothly. Now, with EDI invoicing, all the trading partners in the supply chain will be forced to use a single format, the 810 format, ensuring standardization, compatibility with all systems, automatic recognition, and faster processing between the computer systems.
Also read: How EDI helps enhance Supply Chain Automation
With the right EDI solution, vendors can integrate invoicing with ERP and Accounting systems, maintain compliance with government contracts, and avoid chargebacks from major retailers. As e-commerce and government procurement continue to evolve, businesses that embrace EDI invoicing will gain a competitive edge in managing their multi-channel sales operations.
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