EDI Payments – What It Is and Why Your Business Needs It?

Suchi Goswami
January 16, 2024
Fact checked by
Sunny

Key Points:
EDI is a data format that is used to exchange remittance information from machine to machine.
The National Automated Clearing House Association regulates EDI rules and policies.

Businesses have a prime duty to protect customer information, vendor’s bank details, investing in OpenAI stock, and sending invoices; the manual entry of data like this can cause errors and data breaches. So, to combat these challenges, businesses use EDI payment systems to simplify business operations, connect customers and businesses, and securely transmit payment-related information.

EDI helps businesses in making payments in a better way and also ensures safe data exchange, but what is an EDI Payment? Read below to find out.

This blog will introduce you to EDI payments and explain their benefits and features. Please keep reading till the end to learn everything.

Table of Contents:

What are EDI Payments?
What are the Types of EDI Payments?
What are the Benefits of EDI Payments?
Difference Between EDI, ACH, and EFT
How Do EDI Payments Work?
Frequently Asked Questions

What are EDI Payments?

EDI stands for electronic data interchange. It is a type of electronic service that is used by businesses to exchange payment data from computer to computer. EDI payment mode uses global payment standards to securely share data between customers, suppliers, or trading partners.

It is used by almost every business as it is faster than others and builds a direct connection between the parties. The best part is that EDI payments are paperless, which makes transmitting sensitive data easy and secure. Also, it lets businesses keep track of all transactions between the partners.

You can manage history through the account’s special features to trace the products exchanged in the past and track the product data to understand it. Like every business needs an advisor, it also needs smooth-running tools for expansion, and the EDI payment system helps with that.

What are the Documents Send by Businesses via EDI?

EDI has made it easier for businesses to send and receive various kinds of information electronically in seconds. Here are the documents that one can share through EDI:

Inventory and customs documents
Shipping notices
Bills of lading
Payment documents
Payment Invoices
Purchase orders

What Payment Information is Shared by EDI?

As we know, EDI can transmit financial data electronically between parties, and customers somehow worry about the data that is being shared. Here are the details used by EDI:

Details of the payer and payee: Name and address.
Payment details: Credit/debit card or bank information.
Transaction details: invoice number, reference number, purchase order number.
Currency: The total amount in the currency to be exchanged
Other details: the payment/remittance date.

The data shared by the system is secured as it works with several protocols for user safety.

Well, this was the introduction to EDI payments. Moving ahead, let’s learn about its types and benefits in the coming sections.

Fast Fact: US electronic payment networks that feature direct deposits facilitate more than 26 billion consumer, business, and government transactions every year.

What are the Types of EDI Payments?

EDI has multiple types of methods available for businesses. These types differ from each other and depend on different business models and budgets. You can choose a different EDI type or expand the present one, it all depends on your business needs, technological support, and affordability.

These are the two most popular type of EDI payment systems used by businesses:

Web EDI: This system is best suited for small and medium-sized businesses that needs to exchange data occasionally. It works with any standard internet browser and a compatible device and carries various payment-related information like date and time, sender’s name, invoice, and other transaction details.

Point-to-Point/ Direct EDI: This system is best for large businesses that need to exchange payment information regularly. Direct EDI, also known as Direct EFT, is a point-to-point system that connects all the business partners directly in order to share the transaction details. It works with a smooth mechanism that is capable of storing past records and business data. These payments include data in EDI format so that it can share all the necessary info electronically through a secured channel.

These are the types of EDI payment methods that you can use for your business, depending on its size, needs, and budget. Now that you know this, let’s look at the benefits of using EDI payments by businesses in the next section.

What are the Benefits of EDI Payments?

It is quite important to have a smooth management system for all types of businesses, and one such system is EDI. It streamlines business communications between customers, trading partners, and suppliers through a secured channel. EDI is vital in ensuring the safety of a company’s data. Not just that, EDI hosts many other benefits as well, which include:

It is the most efficient way of exchanging documents within a few seconds.
You can combine various systems with EDI to improve the processing time from order to delivery, which makes business processing even faster.
There are many EDI systems to choose from that fit best for your business type and needs.
It helps to make transactions error-free and lessen the chances of delays, keeping business partners and customers satisfied.
It can validate transactions and also detect errors in the system, which makes business processing easier.
You can focus more on building and expanding the business, as EDI allows you to spend less time transmitting and exchanging documents manually.
Business owners can save costs by integrating the software into their systems.

These are the benefits you can get once you start using EDI. Please note that EDI is different from other formats like EFT and ACH. We have seen people get confused about these three. So for a better understanding, we have explained the difference in the next section.

Difference Between EDI, ACH, and EFT

EDI, ACH, and EFT are all electronic methods for transferring Amazon gift card balance and more, so they are often mistaken as similar processes. Well, these three can be combined for better management. However, their functioning differ from each other. Let’s understand them!

Differences Between EDI and ACH

ACH stands for automated clearing house payments that let you transfer funds electronically through the ACH network. This mode of payment is used for all kinds of money transfers, like direct deposits, business-to-business transactions, and payments to employees.

It is regulated by the National Automated Clearing House Association and has certain rules for the processing. It is a very popular payment method used by people because of the conscience of sending money all over the world within a few minutes. Moreover, businesses also use ACH to make quick payments via a reliable source.

Difference between EDI and EFT

EFT stands for Electronic Funds Transfer, which is also an electronic money transfer method. However, the major difference between ACH and EFT is that ACH payments only use the ACH network for transferring funds, whereas EFT can use multiple networks for funds transfer. Plus, EFT also supports online payments via credit cards and debit cards, like Wisely debit cards and Avant credit cards.

EFT is regulated by The Consumer Financial Protection Bureau. The policies have several guidelines about consumer rights and financial institution’s responsibilities. As businesses always make payments, it is best to switch to virtual payment mode with EFT to save time and keep records.

Note: EDI is not a payment format like EFT and ACH, yet it is related to the payment formats and can also include additional details like EDI.

Now that you know the difference, let’s understand how EDI works in the next section.

How Do EDI Payments Work?

The easiest way to understand how EDI payments work is by comparing it to the manual system. In a manual system, one needs human integration. It requires a lot of work, like manual data entry, which can lead to mistakes that increase the risk of disputes and delays.

It can cost much money to manually see over the mistakes and fix errors to complete the process. Whereas, with EDI, businesses only need to buy the system and software that connects them directly to the other party.

It does not require human intervention as it has an automated process to complete the payment cycles that include sending invoices, entering data into accounts, or sending purchase orders. Plus, you can manage multiple transactions simultaneously, track the transactions, and save all the records. This can help you to look after your business needs, improve your product quality, and manage efficiency.

We hope you have understood what is EDI payment and its benefits through this blog. Please share it with your friends and encourage them to learn about EDI payments, too! Or if you want to know how to transfer money from Apple Pay to Cash App, just read out our detailed guide covering this topic.