What is EDI?
Electronic Data Interchange - the standard for exchanging business documents electronically between trading partners.
Quick Definition
EDI (Electronic Data Interchange) is a standardized format for exchanging business documents electronically between trading partners, replacing paper-based transactions with structured digital communication.
- Eliminates manual data entry and paper documents
- Standardized formats (X12, EDIFACT) ensure compatibility
- Enables automated processing of invoices and POs
Understanding Electronic Data Interchange
Electronic Data Interchange (EDI) has been the backbone of B2B communication for decades. It's a computer-to-computer exchange of business documents in a standard electronic format, enabling companies to trade with each other without paper, phone calls, or manual data entry.
For accounts payable teams, EDI is particularly relevant because:
- EDI 810 invoices arrive already structured and ready for processing
- Automatic matching to EDI 850 purchase orders
- EDI 820 remittance provides payment details to vendors
- Reduced errors from eliminating manual data entry
- Faster processing with straight-through automation
While newer technologies like APIs and e-invoicing networks are gaining ground, EDI remains essential for trading with large retailers, manufacturers, and enterprises that have established EDI infrastructure.
Common EDI Document Types
EDI 810 - Invoice
The electronic invoice sent from seller to buyer:
- • Invoice number and date
- • Line item details
- • Quantities and pricing
- • Payment terms
EDI 850 - Purchase Order
The electronic PO sent from buyer to seller:
- • Order details and quantities
- • Ship-to information
- • Requested delivery date
- • Pricing and terms
EDI 856 - ASN
Advance Ship Notice sent before delivery:
- • Shipment contents
- • Carrier and tracking
- • Expected delivery date
- • Packaging hierarchy
Additional EDI Transaction Sets
Procurement & Orders
- •EDI 855 - Purchase Order Acknowledgment
- •EDI 860 - Purchase Order Change Request
- •EDI 846 - Inventory Inquiry/Advice
- •EDI 830 - Planning Schedule with Release
Payments & Acknowledgments
- •EDI 820 - Payment Order/Remittance Advice
- •EDI 997 - Functional Acknowledgment
- •EDI 824 - Application Advice
- •EDI 812 - Credit/Debit Adjustment
EDI Standards
EDI standards define the structure and format of electronic documents. Two main standards dominate the global landscape:
ANSI X12
The dominant standard in North America:
- • Developed by ASC X12
- • Used in retail, manufacturing, healthcare
- • Numeric transaction set IDs (810, 850, etc.)
- • Industry-specific implementations (VICS, HIPAA)
UN/EDIFACT
The international standard for global trade:
- • United Nations developed
- • Dominant in Europe and Asia
- • Text message names (INVOIC, ORDERS)
- • Used in shipping, logistics, customs
EDI Integration with AP Automation
Reduction in manual data entry
Auto-match rate for EDI invoices
Faster invoice processing cycle
Modern AP automation platforms can ingest EDI 810 invoices directly, automatically matching them to EDI 850 purchase orders and EDI 856 advance ship notices. This enables true straight-through processing for high-volume trading partner invoices.
How EDI Document Exchange Works
Document Creation
The sending system (ERP, order management, etc.) generates a business document like a PO or invoice.
Translation
EDI translation software converts the internal format to the appropriate EDI standard (X12 or EDIFACT).
Transmission
The EDI document is sent via VAN, AS2, SFTP, or other secure protocol to the trading partner.
Receipt & Acknowledgment
The receiving system sends an EDI 997 functional acknowledgment confirming receipt.
Translation (Inbound)
The receiver's EDI software translates the document into their internal format.
Processing
The document is automatically processed by the receiving system (ERP, AP automation, etc.).
EDI Best Practices for AP Teams
Validate Inbound EDI
Implement validation rules to catch malformed or incomplete EDI documents before they enter your AP workflow.
Automate 3-Way Matching
Match EDI 810 invoices against EDI 850 POs and EDI 856 ASNs automatically to enable touchless processing.
Use a Reliable VAN or Direct Connection
Choose a VAN with good uptime and support, or establish AS2 connections for high-volume trading partners.
Maintain Trading Partner Maps
Keep translation maps current as trading partners update their requirements or you add new document types.
Monitor for Exceptions
Set up alerts for failed transmissions, rejected documents, or missing acknowledgments to prevent processing delays.
Common EDI Challenges
- ×Complex setup and maintenance - Each trading partner may have unique requirements and implementation guides
- ×VAN costs - Per-document fees and monthly minimums can add up with high transaction volumes
- ×Legacy technology - Older EDI systems may lack modern features and require specialized expertise
- ×Exception handling - Failed documents or missing acknowledgments require manual intervention
EDI vs Modern E-Invoicing
| Aspect | EDI | E-Invoicing |
|---|---|---|
| Format | Flat file (X12, EDIFACT) | XML (UBL, Peppol) |
| Scope | All B2B documents (PO, invoice, ASN, etc.) | Primarily invoices |
| Connectivity | VAN, AS2, SFTP | API, network (Peppol) |
| Setup | Complex, per-partner | Simpler, network-based |
| Best For | Large retailers, manufacturers | Government mandates, SMBs |