EDI Introduction & Overview

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What Is EDI?


Electronic Data Interchange (EDI) is the process of using computers to exchange business documents between companies in place of traditional methods such as fax machines and the postal service.

Specifically, EDI is the structured transmission of data between organizations by electronic means; and it is used to transmit electronic documents from one computer system to another. A company with whom documents are exchanged is called a "Trading Partner"

In EDI, the standard method of processing of received messages is by computer only. Processing of a received message only requires human intervention for error conditions, quality review, or in the case of exceptions or special situations.

Generally speaking, EDI is considered to be a technical representation of a business conversation between two entities, either internal or external. Although a common perception is that "EDI" includes the entire electronic data interchange process including transmission, message flow, document format, and software used to interpret the documents, EDI really describes the strictly standardized format of electronic documents.

EDI standards are designed to be independent of communication and software technologies and EDI documents can be transmitted using virtually any method agreed to by the trading partners.

That being said, the word "standards" is somewhat misleading since usually it is one trading partner that will dictate the required format to the other partner, and usually the one who gets to dicatate the format is the buyer, although not all EDI transactions relate to the sale of a product.

But, what this means is that, if you wish to sell your products to companies like Sears, Macy's, Kmart, large supermarket chains, or other large retailers, you most likely will be required to use EDI.

It also means that if you wish to send an invoice by EDI to three different trading partners, most likely all three of those invoices will need to be formatted differently!


In spite of the complexity that can be involved in implementing EDI, which is an obstacle we eliminate with our cloud based EDI service, there are numerous business benefits to implementing EDI.

EDI lowers costs by significantly reducing human interaction and eliminating costs of paper and physical file storage. Even when paper documents are maintained in parallel with EDI exchange, electronic exchange and the use of data from that exchange reduces the management costs including sorting, distributing, organizing, and searching paper documents.

EDI and similar technologies allow a company to take advantage of the benefits of storing and manipulating data electronically without the cost of manual entry. Another advantage of EDI is a significant reduction in errors including costly shipping and billing errors.

A further advantage of EDI over paper documents is the speed in which the trading partner receives and incorporates the information into their system thus greatly reducing cycle times. For this reason, EDI can be an important component of just-in-time production systems; and when used for submitting invoices, EDI can greatly reduce the time to receive payment.

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