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EDI

Electronic Data Interchange (EDI) is a standardized electronic method for exchanging business documents, replacing traditional paper communication to enhance efficiency and accuracy. Key EDI documents include purchase orders, invoices, and advance ship notices, which are formatted and transmitted securely over networks. EDI standards such as ANSI X12 and EDIFACT facilitate global transactions, while financial EDI streamlines payment processes between organizations and banks.

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6 views11 pages

EDI

Electronic Data Interchange (EDI) is a standardized electronic method for exchanging business documents, replacing traditional paper communication to enhance efficiency and accuracy. Key EDI documents include purchase orders, invoices, and advance ship notices, which are formatted and transmitted securely over networks. EDI standards such as ANSI X12 and EDIFACT facilitate global transactions, while financial EDI streamlines payment processes between organizations and banks.

Uploaded by

asifaminkuchey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Electronic Data Interchange (EDI)

• Electronic Data Interchange (EDI) is the


electronic exchange of business documents
between organizations in a standardized format.
It replaces traditional paper-based
communication, such as purchase orders,
invoices, and shipping notices, with digital
transactions. EDI enables seamless, efficient, and
accurate data exchange between trading
partners, such as suppliers, manufacturers,
retailers, and logistics providers.
How EDI Works

• Standardized Formats:
– EDI uses standardized formats (e.g., ANSI X12, EDIFACT,
or TRADACOMS) to ensure that data is structured and
understood by all parties.
• Data Translation:
– Business documents (e.g., purchase orders) are converted into
the required EDI format using EDI software or a third-party EDI
service provider.
• Transmission:
– The formatted data is transmitted securely over a network, such
as the Internet, Value-Added Network (VAN), or AS2.
• Receipt and Processing:
– The recipient's system receives the EDI document, translates it
back into a readable format, and processes it automatically.
Common EDI Documents
• Purchase Order (EDI 850):
– Sent by a buyer to a supplier to request goods or services.
• Invoice (EDI 810):
– Sent by a supplier to a buyer to request payment for goods or
services.
• Advance Ship Notice (ASN) (EDI 856):
– Sent by a supplier to notify the buyer of pending shipments.
• Order Acknowledgment (EDI 855):
– Sent by a supplier to confirm receipt of a purchase order.
• Payment Remittance (EDI 820):
– Sent by a buyer to a supplier to confirm payment.
• Inventory Inquiry (EDI 846):
– Used to check the availability of products in inventory.
ANSI X12 and EDIFACT
• ANSI X12 and EDIFACT are both electronic
data interchange (EDI) standards that allow
organizations to exchange business
documents electronically. They both use a
hierarchical structure to organize data, but
they differ in syntax, structure, and data
elements.
What they do:
• ANSI X12
• A set of standards developed by the American
National Standards Institute (ANSI). It's used to create
and send standardized business documents like
invoices, purchase orders, and shipping notices.
• EDIFACT
• An international EDI standard that's used for
business-to-business transactions. It's used to
structure data for over 200 business documents,
including invoices, orders, and dispatch notes.
How they differ:
• Geographic location
ANSI X12 is mainly used in North America, while EDIFACT is more
common in Europe and Asia.
• Structure
ANSI X12 uses a hierarchical structure of segments and
elements. EDIFACT also uses a hierarchical structure, but it's more
flexible.
• Composite elements
Composite elements are rare in ANSI X12, but common in EDIFACT.
• Header and footer
ANSI X12 uses GS and GE for the header and footer,
respectively. EDIFACT uses UNG and UNE for the header and footer.
Electronic data interchange
• Electronic data interchange involves the electronic
transfer of information in a standardized, machine-
readable format. Similarly, financial EDI is the electronic
transfer of payments, payment-related information, or
other financial documents in a standardized, machine-
readable format.
• Businesses use financial EDI to transmit payments to one
another. However, governments rely upon financial EDI
to transfer tax payments. Financial EDI powers today’s
globalized economy; without it, transferring payments on
a massive scale would be slow and labor-intensive.
How Does Financial EDI Work?

• To send a payment through financial EDI, there are a few


steps that a company or institution undertakes.
• The buyer electronically extracts payment information from
the organization’s accounts payable system. That data is
formatted into an EDI standard. Then, the transaction set is
transmitted to the organization’s bank.
• Next, the bank formats that information into the format
necessary for its transmission through the Automated
Clearing House (ACH) Network as an ACH transaction. The
ACH network delivers the payment and its associated data to
the seller’s bank, with the bank crediting the seller. It
automatically transmits the payment information to the
seller’s accounts receivable system, where the seller can see
the funds have been posted.
EDI and Internet
• Electronic Data Interchange (EDI) is a system that allows
businesses to exchange documents electronically over the
internet. EDI can be used to exchange business documents
like invoices, purchase orders, and shipping notices.
• How EDI and the internet work together
• Web EDI: A web browser can be used to complete EDI
transactions.
• Secure internet protocols: EDI messages are sent using
secure protocols like HTTPS, FTPS, or AS2.
• XML: XML is used to make EDI more accessible and cost-
effective for small and medium-sized businesses.

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