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What is EDI (Electronic Data Interchange)?


What is EDI (Electronic Data Interchange)?

Unless you are a tech nerd, the term EDI may be new to you. EDI, or  Electronic Data Interchange is the computer-to-computer exchange of business documents in a standard electronic format between businesses

Businesses enjoy significant benefits by moving from a paper-based document exchange to a solely digital interaction. Benefits include reducing costs, reducing errors, improved customer and business partner satisfaction, and increased processing speed. 

EDI replaces postal mail, fax and email – as it is all done from one computer to another. So how is it different to email? While email is also an electronic application, the documents exchanged via email must still be handled by people. Involving people leaves room for human error and slows down the process. EDI documents flow straight through to the appropriate software on the receiver’s computer (e.g., the Purchase Order Management system), and processing begins immediately. 

A typical business process is the exchange of purchase orders and invoices. Without EDI, a manual process would look like this:

  • The buyer creates a purchase order after checking that one has not already been raised in the system
  • The buyer enters data into their purchasing system to generate the PO
  • print PO
  • Mail/email PO
  • WAIT SEVERAL DAYS for the vendor to receive the mail
  • the vendor receives the PO and manually enters it into their sales order system
  • The vendor prints an invoice and encloses it with the shipment 
  • The buyer manually enters the invoice into the Accounts Payable system

The exchange of paper documents can add a week to the process. If there are errors caused by manual data entry, the time can be increased significantly.

Now compare that with the EDI process:

  • The buyer’s procurement system, which utilises EDI software, automatically generates and sends an EDI-formatted PO when inventory reaches the critical level.
  • Within minutes the vendor’s sales order system, utilising EDI software, receives the EDI PO, notifies the shipping department to ship the goods and generates an EDI invoice to be transmitted directly to the buyer’s accounts payable system.

The EDI process can be completed within hours.

EDI documents

Many business documents can utilise EDI systems. The most exchanged EDI documents currently are Purchase Orders, Invoices and Shipping Notices. 

However, this application can be used with almost any business document. 

1:1 Keeping it the same

Because computers, not humans, process EDI documents, a standard format is required so that the computer will be able to read and understand the documents. 

A standard format describes each piece of information and in what format (e.g., integer, decimal, mmddyy). Without a standard format, each company would send documents using its company-specific format. Just like an English-speaking person probably doesn’t understand Japanese, the receiver’s computer system doesn’t understand the company-specific format of the sender’s format.

If your business could benefit from the automation that EDI (Electronic Data Interchange) can provide – talk to the construction industry experts at Thrive today on 1300 868 474 or

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