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EDI - Electronic Data Interchange

EDI  - Electronic Data Interchange

Electronic Data Interchange (EDI) is the electronic interchange of business information using a standardized format; a process which allows one company to send information to another company electronically rather than with paper. Business entities conducting business electronically are called trading partners.

Many business documents can be exchanged using EDI, but the two most common are purchase orders and invoices. At a minimum, EDI replaces the mail preparation and handling associated with traditional business communication. However, the real power of EDI is that it standardizes the information communicated in business documents, which makes possible a "paperless" exchange.

The traditional invoice illustrates what this can mean. Most companies create invoices using a computer system, print a paper copy of the invoice and mail it to the customer. Upon receipt, the customer frequently marks up the invoice and enters it into its own computer system. The entire process is nothing more than the transfer of information from the seller's computer to the customer's computer. EDI makes it possible to minimize or even eliminate the manual steps involved in this transfer.

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F.A.Q. about EDI - Electronic Data Interchange

What does Electronic Data Interchange (EDI) mean?

Electronic data interchange (EDI) is the electronic transmission of structured data by agreed message standards from one computer system to another without human intervention. It is a system for exchanging business documents with external entities.

EDI refers to a family of standards and does not specify transmission methods, which are freely agreed upon by the trading partners.

The wide adoption of EDI in the business world facilitates efficiency and cost reduction. EDI is used in such diverse business-to-business relationships as:

  • Interchanges between health care providers and insurers
  • Travel and hotel bookings
  • Education
  • Supply chain management
  • Administration
  • Tax reporting

EDI is a sequence of messages between two trading partners, either of which may serve as the originator or recipient. The messages are transmitted and received without human intervention. Each message is composed according to a standardized syntax from a sequence of standardized data elements. It is this standardization that makes message assembling, disassembling and processing by the computer possible.

EDI is considered to be a technical representation of a business conversation between two entities, either internal or external. The EDI standards were designed to be independent of communication and software technologies. EDI can be transmitted using any methodology agreed to by the sender and recipient.