Definition of EDI:

Electronic data interchange (EDI) is the digital exchange of business data in a standard digital format. This type of data exchange removes the need to use paper documentation.

When did EDI begin?

EDI might sound like a new development, but its beginning can be traced back to the 1960s when computers became capable of exchanging information with each other.

How does EDI work?

An EDI solution connects to your ERP system. It taps into the information stored in your ERP to generate the documents that your company needs to conduct B2B business.

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Computer-to-computer data exchange

As mentioned above, EDI replaces any form of paper communication. With an EDI connection, the logistics system connects with the order management system. Documents are then automatically exchanged between two parties. The types of documents that can be transferred through EDI include invoices, shipping statuses, payment confirmations, customs info, etc.

EDI data is standardized

EDI documents are standardized and created in a computer-friendly format. These standards help eliminate the large differences between companies, allowing your system to speak the same language as another company’s system. EDI facilitates companies to do business with each other.


What are the benefits of EDI?

Increased automation and efficiency

With EDI, messages can be sent automatically by using a pre-configured workflow — automating processes. Companies using EDI see a decrease in manual errors, increasing their businesses’ efficiency.

EDI contributes to cost savings

Not only is having paper documentation inefficient — but it’s also costly. All costs associated with printing, storage, and postage are eliminated by using EDI. Companies that switch to EDI say they have lowered their business costs by 35%.

Accelerated business cycle

Because EDI standardizes documents in a computer-friendly format, and there is no need to wait days or even weeks for postal service, transactions can be expedited. This helps to reduce the order-to-cash cycle.


What are the challenges with EDI?

Scaling your EDI

While having standard EDI functions can be beneficial, it can also be challenging for companies who are looking to scale their business. A normal EDI solution varies per industry, and per trading partner.

If you’re internationalizing your business, changing your primary industry, or adding new types of customers to accommodate different needs, then you might need to consider other options or search for the most scalable EDI solution. As scaling your EDI to accommodate new industries and new business rules can be challenging, make sure it accommodates several business rules before buying your EDI software.

Having an ERP and e-commerce solution as quick as your EDI

With your EDI able to send and process documents in real-time, you should ensure your ERP and e-commerce platform can also process this data in real-time. EDI data used to be pulled from your system daily. But nowadays with expectations of next-day delivery you require real-time data processing in all aspects of your business ERP, e-commerce, and EDI. Learn more about how B2B e-commerce complements EDI (and vice versa).

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The cost of EDI

While having EDI software can contribute to cost savings and helps speed up your business cycle, it can also be very costly. Owning EDI software is expensive and you also need to have a dedicated IT team with EDI experience to maintain it.


Even though EDI is used by many companies in various industries, there are still security concerns surrounding it. These concerns stem from the type of information being shared between business partners. So, while many companies use this software, others are still hesitant to purchase EDI due to security concerns.

Want to learn more?

Then read more about EDI and B2B e-commerce: The perfect marriage