EDI makes the payment process less painful for retailers

by | Nov 10, 2016

Retailers who haven’t fully embraced an electronic trading system using EDI may be overspending and overstaffing. The problem is they rely on a lot of staff time to prepare and compare documentation to ensure the purchase orders match the Warehouse/Store Receiving document and invoices.

In a non-automated system, when an invoice arrives at a retailer’s Accounts Payable, they hand match all the paperwork, looking for discrepancies in pricing or quantity. And they check every invoice.

When I ran the operations and administration functions at a retailer, we had a department of 15 people whose job was to manually reconcile all the documentation before they could issue payments. When we started doing EDI, we found that 70% of our invoices had no issues.

Staff members were able to focus their attention on the exceptions. We could stop reconciling 70 percent of the paperwork that came into our office and focus on the 30 percent the system kicked out.

What we found was a large number of invoices had pricing problems, a large number had quantity problems, and a smaller number had issues of payment terms (e.g. when a payment should be scheduled, or the cash discounts were different).

By eliminating the need to check 70 percent of the paperwork, we could devote more time to investigating the rest. We ended up needing fewer staff members to process payments, allowing us to reallocate resources to other functions. We were also able to take advantage of more cash discounts, thanks to on-time payments and other special offers from our vendors. All in all, EDI ended up being a big boost to our total profits as a company.

EDI Also Reduces Shipping Costs, No Matter Who Ships It

There are three typical ways for retailers to fulfill online orders: Via a supplier direct, a 3PL or with the retailer’s own inventory. Which way the online order is fulfilled could depend on various factors, including systems, price, geographic location in relation to the customer’s delivery address, inventory, etc.

With that in mind, retailers can use EDI to help with their shipping costs. In many cases, third-party logistics providers (Carriers) provide volume discounts to vendors and retailers who ship a lot of products. And since many retailers ship to their retail stores, as well as direct to consumers, they can take advantage of the Carriers lower shipping rates.

Likewise when a retailer’s shipping rates are lower than a vendor’s, the retailer will often ask the vendor to use its account number. Rather than paying the vendor’s shipping rate (especially smaller vendors that only ship a few boxes a day so likely pay full price), the retailer pays its own negotiated shipping rate, often saving a few dollars per shipment and increasing its volumes to drive even better pricing.

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Scott Bolduc

Director of Supply Chain Strategy at SPS Commerce
Scott Bolduc is a multi-time winner of the Supply & Demand Chain Executive Pros to Know. He has worked with e-commerce retailers on their growth strategies and helped retailers transform their freight spending strategies to maximize efficiencies.
Scott Bolduc

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