What Is EDI (Electronic Data Interchange)?

You know EDI is essential to your business, but you’re not exactly sure how it works. You would like to know more about commonly transmitted EDI documents, the difference between raw EDI vs. human-readable formats, and the components of a successful EDI implementation. Find these answers and more below.

Electronic Data Interchange (EDI) is how business partners/companies exchange documents via computer-to-computer in a standard format. Exchanging these documents electronically majorly benefits a company with reduced costs, reduced errors, improved relationships with partners, and increased processing speeds.

By utilizing computer-to-computer EDI, postal mail, fax and email are replaced. Emails, while electronic, are still handled by people and not computers. When people are involved, the processing of documents is slowed down and errors can occur.

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What is electronic data interchange?

EDI stands for Electronic Data Interchange. It is a protocol maintained by the American National Standards Institute (ANSI) used for the computer-to-computer exchange of business transactions and business-to-business information exchange.

To understand and appreciate the value of EDI, let’s see how a transaction such as a purchase order is exchanged without EDI. Although the purchase order may start out as electronic data, along the way it might be printed to paper, then manually retyped into the receiving party’s business system. It’s easy to see the inconsistency and potential inaccuracy of all these manual steps, especially when data must be rekeyed.

With EDI, it allows businesses with two different business systems to use a common language to talk to each other. By automating the process, human interaction is minimized, and delays and mistakes can be greatly reduced and eliminated.

Common EDI Transactions

There are hundreds of business documents that can be electronically transacted via EDI. Here are some common EDI document types:

Purchase Order (850) – Used to initiate an order
Invoice (810) – Sent to request payment
Advance Ship Notice or ASN (856) – Let a company buying products know when and how their items will be shipped. ASNs often include barcode information that indicates specific items in the box.
Functional Acknowledgement (997) – Simple but highly beneficial transactions that confirm the date and time the document transmitted via EDI was received. Imagine no longer having to wonder when you will be paid for an order because you’ll know exactly the day and time your customers received their invoice.

EDI 810

EDI 810 is an electronic version of a paper invoice that sellers send to buyers to request payment for products delivered.

EDI 850

EDI 850 is an electronic purchase order sent from a buyer to a seller, requesting goods or services.

EDI 856

The primary purpose of the advance ship notice (ASN) is to provide detailed information about a pending delivery of goods.

EDI 945

This primary transaction is designed for communication with remote warehouses.

Benefits of EDI

The benefits of using EDI range from expediency and efficiency gains to being able to conduct business with the largest, most influential businesses in the world. Some key benefits of EDI include:

Expedient transmissions
Automated data entry
Receipt verification
Data validation
Compliance

Who We Serve

At Effective Data, we empower organizations across a wide range of industries to move critical business information with speed, accuracy, and security. Whether you’re in retail, manufacturing, healthcare, logistics, or any other data-driven industry, our EDI solutions are tailored to meet your unique operational needs.

We work with businesses of all sizes to help them streamline operations, reduce manual errors, and ensure compliance with trading partners. No matter your sector, if your business depends on reliable data exchange, we’re here to make it seamless.

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EDI Implementation

To successfully implement a fully integrated EDI solution, four components are required.

Integration / Mapping
Translation
Network
Support & Maintenance

Here we have two trading partners who need to exchange business documents using EDI. On the left is the Supplier, and on the right is the customer, a large Retailer.

First, they need to be able to automatically move transactions to and from their backend and business or financial software without having to retype it. This is called integration. Data mapping software ensures that the EDI data being pushed and pulled appears in correct places in all of the documents.

Second, translation software converts those documents and their data to and from the EDI standard.

Third, just like a cell phone, a secure and reliable network is needed to be able to exchange EDI transactions with trading partners.

Finally, the fourth component, which is often overlooked, is the support and maintenance required to implement an EDI system and keep it running.

In a traditional EDI solution, each of these components is sourced through various providers that specialize in providing one of these services or software products.

The Effective-Data Solution

With the Effective-Data Solution, the complexity traditionally associated with EDI is avoided because we offer a true end-to-end solution. We implement everything a user needs for a cost-effective EDI solution.

What Is EDI?