EDI helps with automated processing of credit notes

A large part of companies that receive or issue invoices via EDI handle credit notes manually – in PDF or even on paper. This means they have to keep double records, which means extra costs for them. However, interest in automating the flow of credit notes is growing, and we are currently helping to set it up for three large Czech customers. We have therefore decided to explain how EDI credit notes work in practice.

Briefly about credit notes

A credit note is a document by which the supplier reduces or completely nullifies the amount of a previously issued invoice to the customer. It is actually a negative invoice. The very name credit note is a familiar term among entrepreneurs, legally the document is called a corrective tax document – this is how VAT payers must label credit notes. You issue a credit note either for all items on the invoice, or only for part of them.

Suppliers issue credit notes most often in the following cases:

• complaints about goods or services (due to repair, damage or return of incorrectly delivered or expired goods),
• complaint about the price of items or the amount of VAT on the original invoice,
• cancellation of the delivery of goods or services,
• additional discounts on goods or services.

In terms of maturity, a credit note can reduce the amount of:

• issued but not yet paid invoices (paid on the basis of mutual offsetting),
• issued and already paid invoices (usually paid by transfer from the supplier's account to the customer's account).

How do you resolve credit notes in EDI?

A credit note has the same structure in EDI as a classic invoice, so the INVOIC message is used for it. From the supplier's perspective, sending credit notes via EDI is the same as for a classic invoice. The only thing is that the document is appropriately marked and edited according to the customer's individual instructions before being issued.

In order for the customer to start processing EDI credit notes, they must prepare their ERP system for this. They will therefore contact their ERP supplier, who will implement this functionality . The EDI provider may provide consultation and recommendations.

After implementation, the customer creates instructions for all its suppliers, specifying the conditions for EDI credit notes so that their ERP system can automatically process them. Here is a sample of the specifics of an EDI credit note issued as a tax adjustment document for goods returns:

• the designation "INVOIC 381" to make it clear at first glance that it is a credit note - the number 381 is the universal designation of a credit note in EDI,
• the quantity of goods to which the credit note relates is given in a negative value (however, the price per unit remains positive),
• the number of the original document for which the customer issues the credit note (for example, order or invoice number),
• a note with the reason why the correction document is being created (only serves to better guide the customer).

However, this form of EDI credit note is not strictly defined. For example, the customer may request that the quantity of goods be stated in a positive value according to the settings in their ERP system. If you as a supplier are not familiar with editing the document, an EDI provider can help you, who will also ensure that all message parameters are correct.

In EDI, there are several designations of credit notes according to their type . It depends on the customer which one they will require in EDI communication with suppliers. For example:

• 381 – credit note,
• 383 – debit note,
• 384 – correction invoice,
• 385 – collective invoice.

However, the GS1 standards administrator plans to unify all EDI credit notes under one numerical designation in the future. "The procedures for processing corrective tax documents often differ among individual traders and suppliers. It is still necessary to remember that each corrective document must contain the number and date of issue of the original document . GS1 Czech Republic, in cooperation with EDI providers, has prepared a proposal to supplement the INVOIC message manual, version D01B, Syntax 3, which contains an example of a possible solution to the given issue. This manual will be available to all users of the GS1 System on the website of the standardization organization," says Hana Strahlová, EDI manager from GS1 Czech Republic, about the changes.

Benefits of automating credit notes using EDI

Thanks to the automation of credit notes, companies with EDI get rid of the double record keeping of documents , due to which invoices are processed via EDI and credit notes are processed on paper or in PDF. For large companies from the e-commerce or fast-moving segment, where credit notes account for around 15% of the total invoice volume, the savings can be in the hundreds of thousands of CZK per year .

When large customers start processing credit notes via EDI, it will also make things easier for their suppliers . If suppliers are already processing invoices via EDI, they can immediately process credit notes via it and do not have to send documents to one customer in two ways.

Other advantages of processing credit notes via EDI are the same as with invoice processing, namely:

• saving time and work thanks to automatic document processing,
• minimizing errors in data transmission,
• better overview of the status of documents thanks to notifications
• or electronic archiving according to applicable legislation.

More and more companies want to process credit notes in EDI

Customers often postpone automating credit memos. They account for a smaller percentage of their document volume, so processing them via EDI is not as high a priority as traditional invoices and orders. However, if credit memos account for at least 10% of their document volume , it is worth processing them in EDI.

That is why the number of companies that are additionally implementing credit note processing via EDI is growing. Among our customers, Alza.cz, Mall.cz, PRO-DOMA or Coop Morava handle credit notes via EDI, for example.

Do you also want to process credit notes and other documents via EDI? Contact us . We will discuss your requirements with you without obligation and come up with a tailor-made solution.