Electronic data interchange

What it means

EDI is the exchange of commercial documents straight between the information systems of two companies in an agreed structured format. An order, a delivery note or an invoice moves from system to system with nobody retyping it.

It is not PDF by e-mail: a PDF is a picture of a document that a person or OCR has to read. An EDI message is data the accounting system processes by itself, and the invoice is only one such message: electronic invoicing deals with that document alone, EDI with the whole ordering and delivery conversation.

EDI does not prescribe a single format. There are several message standards and large retail chains often specify their own variant, so EDI is really an agreement on which messages, in what structure and over which channel the partners exchange. Connecting to one customer therefore does not mean being connected to the next, even though both work with structured data.

How it works in practice

The connection runs through an EDI provider or the Peppol network, which lets partners exchange messages without a separate link for every customer. Retail chains and manufacturers often require EDI from a supplier as a condition of trading.

An invoice received over EDI is a full tax document provided the authenticity of origin, the integrity of content and legibility are assured. The duty of document retention then covers the message itself, not a printout of it.

When a supplier introduces EDI, most of our work is matching data: the product list, delivery point codes and order numbers in the ERP or accounting program must agree with what the customer uses. Otherwise the invoice goes out, but the chain’s system rejects it as unmatched and payment is held until the difference is resolved.

What to watch out for

The usual mistake is to keep only the PDF previews from the provider portal. Once the contract ends the portal goes dark, the original messages are gone, and at a tax audit there is nothing to support the VAT deducted on years of invoices.

In automated exchange a correction is easily missed. If the customer sends a message about a complaint or a quantity difference and the supplier issues no credit note in the books, the customer’s balance drifts from its records and VAT is declared on too high a base. The gap then surfaces only at the year-end reconciliation.