The Role of EDI in Freight Invoice Processing
Freight invoice processing plays an essential role in the transport and logistics industry, as carriers and shippers exchange this mission-critical data electronically using electronic data interchange, better known as EDI. For companies not yet using this technology, a business leader may wonder: “What is EDI, exactly?” and “Is electronic data interchange efficient and secure?”
What is Electronic Data Interchange?
Electronic data interchange, or EDI, involves the electronic interchange of business-related information using a uniform, standard format. The data is exchanged between two or more companies using a paperless electronic process. The companies involved in computer-to-computer data exchange are known as “trading partners.”
Electronic data interchange was developed in the 1960s by the Du Pont chemical company. Du Pont’s logistics division first used the technology to send cargo information to its Chemical Leahman Tank Lines transport company. This was the first usage of EDI technology, and the practice continues in today’s transport and logistics industry.
Electronic data exchange is now commonplace in the transport and logistics industry — the default option for sending and receiving essential documents. EDI is the preferred option for data sharing thanks to the speed and reliability of this technology. Transport and shipping carriers are increasingly using electronic data interchange to send and receive bills of lading (BOLs) and carrier freight invoices.
Benefits of Using EDI for Freight Invoice Processing
- Shipping company information;
- Shipment point of origin;
- Shipment destination;
- Description of freight and contents;
- Freight load size and weight;
- Charges incurred immediately before, during, and after transport;
- Delivery-related fees and charges;
- Miscellaneous fees and charges; and
- Total amount due to the carrier.
Bill of lading documents contain similar data, but BOLs are more formal, and they can even stand up as evidence in a court case, whereas a freight bill is less formal. Both of these documents are commonly transmitted using EDI technology.
The electronic data interchange process is used for more efficient freight invoice processing, leading to prompter payments, improved accuracy, and better cash flow.
The Benefits of Using EDI for Freight Invoice Processing
Electronic data interchange is used to send data directly from computer to computer instead of via print-outs, fax, snail mail, or other methods. It brings several benefits, especially when using EDI for freight invoice processing.
Reduction in Errors – There is a significant reduction in human error rate when the data transmission process is electronic and automated. This leads to faster, more efficient freight invoice processing and payments. Notably, EDI errors can only occur at the source.
Improved Speed – Electronic data interchange often involves data transmission in a matter of seconds. This expedites the auditing, processing, and payment process for freight invoices.
Standard Format – Freight bills and other data sent using EDI technology are transmitted using a standardized format that the receiving system can read. This standardized approach to data leads to greater efficiency and streamlined data processing.
High Levels of Security – Since EDI involves a rapid transmission from computer to computer, it is relatively easy to implement security measures that protect your data. This is ideal for potentially sensitive information that may be included in documents.
Drawbacks of EDI for Freight Invoice Processing
These benefits of EDI for freight invoice processing have prompted many companies to adopt this method for the transmission of these mission-critical documents. That said, there are some potential drawbacks that must be considered. While they are not always deal-breakers, these disadvantages must be understood and considered if you’re considering a switch to electronic data interchange as your primary method for sending and receiving freight bills.
One-Direction Data Transmission – Electronic data interchange data transmissions are one-directional. In other words, there is no ability for a system to automatically send a reply to indicate that a document has been received. The lack of an automated and default confirmation message may be problematic in cases where a document is not received as expected. Discovering that a document was never received could take some time, which can result in delays.
Data Transfer is Not Instantaneous – While EDI transmissions occur rapidly in most cases, it’s not instantaneous. Conditions such as a congested network or larger documents can lead to a scenario where the data takes some time. This may be problematic if you are expecting instant data transmission.
Errors May Still Exist – It’s easy to be lulled into complacency since the data transmission during the EDI process will not generate new errors. But errors can still occur at the point of origin, such as when the carrier generates the freight invoice. Therefore, thorough freight bill auditing is essential to ensure that all data is accurate.
Leveraging EDI in Freight Invoice Processing and Auditing
A business needs the proper IT infrastructure to use EDI for freight invoice processing, and you’ll need adequate integrations to streamline the process. Your electronic data interchange platform should be integrated with back office systems so freight invoices and other documents can be easily created and sent.
At iTech, we specialize in data management, process automation, and other digital transformations designed to improve productivity and efficiency for shipping and logistics companies. Our innovative tech specialists will work with your business to understand your technology, challenges, and IT strategy. Then, we collaborate with the client to develop a winning business process automation and development plan to generate a healthy ROI. We invite you to contact the team at iTech today to begin a dialogue on EDI in freight invoice processing and auditing operations.