EDI vs. E-Invoicing: What are the differences?

by | Jan 4, 2024 | E-invoicing

EDI has been in use since the 1970s, using standards such as ANSI X12 and UN/EDIFACT. However, the EU’s “VAT in the Digital Age” initiative mandates electronic invoicing for public contractors as of 2024, making this technology increasingly popular in Europe. Are these technologies interchangeable? Let’s take a closer look.

What is EDI?

EDI stands for Electronic Data Interchange and refers to the electronic exchange of business data between two or more companies. EDI messages are transmitted in a standardized format to ensure that they can be processed correctly by the recipient systems.

EDI has been in use since the 1970s and was the dominant technology in the early years of electronic invoicing. However, EDI messages can contain not only invoices, but also other business documents such as orders, delivery notes, and order confirmations.

Trading partners that send documents electronically must follow the same standards to format their business critical data. Standards are the rules (structure, content, syntax) that define the language used to exchange data between trading partners. These standards ensure a commonly understood meaning across different systems.

Most trading partners use the following EDI standards:

  • ANSI X12 – American National Standards Institute X12
  • UN/EDIFACT – EDI for the Facilitation of Administration, Commerce, and Transport

Commonly used international standards are:

  • GS1 – Global Standards 1
  • Peppol – A set of open and interoperable technical specifications across purchase-to-pay (P2P) business processes.

Although EDI is still a common technology, it is increasingly being replaced by e-invoicing. E-invoices are written in a standardized format that is supported by all common invoice processing systems. This makes them easier for companies to use and process.

What is E-Invoicing?

E-invoicing is the electronic exchange of invoices between two or more companies. E-invoices are written in a standardized format that can be processed correctly by the recipient systems. E-invoicing offers a number of advantages over paper-based invoicing, including:

  • Efficiency: E-invoices can be processed faster and easier than paper invoices. This can lead to significant time and cost savings.
  • Accuracy: E-invoices are less prone to errors than paper invoices. This can lead to improved payment processing.
  • Traceability: E-invoices can be tracked more easily than paper invoices. This can make troubleshooting and payment tracking easier.

E-invoicing becomes mandatory in the EU through the “VAT in the Digital Age” initiative. It provides that from January 1, 2024, all public contractors and all companies that award public contracts must issue e-invoices to public contractors. From January 1, 2026, the e-invoicing obligation will be extended to all companies that issue invoices to other companies in the EU. This gradual system will allow to implement the ViDA VAT system by 2028. After this deadline, invoices that do not comply with the new guidelines will not be accepted for payment.

The main change brought about by this legislation is that the exchange of invoices will take place through the tax authorities. The specific methods may vary from country to country, but the basic concept remains the same: every invoice with a VAT component will pass through the tax authorities. This enables them to monitor compliance with VAT obligations on an invoice-by-invoice basis.

Difference Between EDI and E-Invoicing

EDI and e-invoicing are both technologies that enable the electronic exchange of invoices. However, there are some key differences between the two technologies:

  • Functionality: EDI is capable of transmitting all types of data (purchase orders, shipping notices, sales orders, etc.), while e-invoicing is designed exclusively for the exchange of invoices.
  • Standardization: EDI messages are written in a proprietary format that must be agreed upon by the participating companies. E-invoices are written in a standardized format that is supported by all common invoice processing systems.
  • Implementation: EDI systems can be complex and expensive. E-invoicing systems are typically easier to implement and more cost-effective.
  • Cost savings: EDI can lead to significant cost savings, especially for companies with a high volume of business documents. E-invoices can also lead to cost savings, but are typically not as cost-effective as EDI.
  • Speed: EDI messages can be transmitted quickly and easily. E-invoices can also be transmitted quickly and easily.
  • Regulatory requirements: EDI messages must meet the requirements of the respective industry and country. E-invoices must meet the requirements of the EU initiative “VAT in the Digital Age”.

Conclusion

EDI is an established technology that is used in many industries. E-invoicing is a newer technology that is gaining increasing importance. E-invoices offer a number of advantages over EDI, including easier implementation, lower costs, and improved regulatory compliance. However, we can’t say that one solution is better than another – simply because they serve different purposes. The final choice of the software should always depend on the organizaitonal needs and its technical capabilities.

If you consider one of the options and look for more information on the topic – we’re going to share more important information in our next blog post. Looking for personalized advice? Describe your case here, and we’ll get back to you with a free, non-binding advise.

Aleksandra Vovchenko
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