What is EDI?

Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents in an agreed format between business partners. Because EDI documents must be processed by computers rather than humans, an agreed format must be used so that the computer will be able to read and understand the documents. There are many EDI standards such as EDIFACT and X12, and many versions of these, but you or your partner may also choose a CSV or XML layout for example.

Businesses can use EDI translation and communication software to translate the EDI format in and out of their internal applications and thus enable straight through automated processing of documents.

EDI can replace postal mail, fax and email. While email is also an electronic approach, the documents exchanged via email must still be handled manually. This slows down the processing of the documents and can introduce errors. Instead, EDI documents can flow straight through to the appropriate application on the receiver’s computer (e.g., the Order Management System) and processing can begin immediately.

A typical manual process looks like this, with lots of paper and data entry:

The EDI process looks like this — usually there are no manual steps or paper documents involved:

The most common documents exchanged via EDI are purchase orders and invoices. But there are many, many others such as order responses, advance shipping notices, customs documents, inventory documents and payment documents.