What is EDI or Electronic Data Interchange?

For every business, a key process is the purchase order (PO) and invoice exchange. Traditionally, it has been performed using paper documentation. This is a lengthy process wherein buyers print and mail a PO to the vendor, who enters it into their sales order system. Next, the vendor prints the invoice which is generally enclosed with the shipment. Upon receipt, the buyer manually enters the invoice into the Accounts Payable system. This process is not only time-consuming, usually a week or more, but since the process is largely manual, there is a far greater possibility for error.

Enter Electronic Data Interchange (EDI). What is EDI? This is the standardized electronic format for communication between business partners, from computer-to-computer and a cloud-based exchange. The EDI process begins with the buyer’s procurement system, which uses EDI software to automatically, at the point of sale, generate and send an EDI-formatted PO. Within minutes, not days, the vendor’s sales order system, which also uses EDI software, receives the EDI-generated PO, and notifies their shipping department to ship the goods. At this point an EDI invoice is generated and directly transmitted to the buyer’s Accounts Payable system. The entire process takes hours, not days or weeks.

EDI Process Overview

For its efficiency and accuracy, more and more organizations have been moving away from paper-based data exchange and toward EDI. This transition creates major competitive advantages for businesses and their partners such as reduction of cost, reduction or errors, increased processing speed, and improved relationships.

85% of Electronic Business Transactions Use EDICurrently more than 85% of all electronic business transactions take place utilizing EDI. The EDI process has been proven to be the most efficient and secure process to exchange business documents globally. If EDI isn’t in use with your organization, it’s guaranteed that optimization is not being met.

EDI 101 Guide
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