What’s the most challenging part of your business?
Your answer might be: handling transaction data for the tons of payments your business sends or receives. Isn’t it?
It has never been easy to manage transaction information. However, it can become more challenging if you do not have an encrypted way of exchanging payment information from your computer system to your trading partners.
So, whether you outsource your payment mechanism or handle it yourself- in either case- you must learn about EDI payments.
What is an EDI payment?
EDI is an alternative to payment data transmission with papers which is cumbersome. An EDI payment is an electronic way to transfer payment information, helping you replace error-prone manual exchange of data.
As an encrypted electronic mechanism, an EDI handles all your business transactions making it easy to transfer invoices and payment information.
Now, that you know the basics of EDI payments, let’s understand how they make transaction management easy
So, what does EDI payment mean?
EDI payment refers to electronic data interchange (EDI) payment. As a part of the payment management phase in the order cycle, an EDI is the electronic exchange of data that provides businesses a standard format for sharing payment information between computers.
An EDI payment supports smooth transactions, streamlining the process of payment requests, order reconciliation, and generating invoices for trade partners.
Primarily, electronic data interchange (EDI) works well for transactions between two trading partners such as a supplier and a retailer. So, when you add more than two partners, sending or receiving the payment order or remittance advice might become more complicated for you.
Besides a little bit of complication, EDI offers manifold benefits such as efficient turnaround of information, reduced delays in claim processing, and lower administrative expenses.
EDI payment order comprises some key information or standard documents such as:
- Name and address details of payer and payee
- Credit/debit card information
- Payment or funding method
- Account and bank routing details
- Trace reference number
- Check or payment number
- Payment amount
Types of EDI Payments
There are many types of EDI payments for businesses.
Whether you are learning about EDI for the first time or looking to expand an existing EDI infrastructure, one or the other type of EDI payment will serve your purpose.
Following two popular types of EDI payment can help your organization connect to business partners across the globe:
Direct EDI is also called point-to-point EDI that connects two business partners establishing a single network. In other words, direct EDI is the way you can individually connect with one of your trading partners using the same protocol or communication method.
Since the direct EDI only connects two sides, with more trading partners, you will need to create separate network lines for each.
For instance, if you have thousands of trading partners, you will need to manage a thousand separate connections.
This method is used by large corporations that need to connect directly with their trading partners for frequent exchange of large volume EDI documents.
Web EDI refers to connecting with business partners for sharing EDI payment information using an Internet browser.
Using this type of EDI, all you need to do is enter the relevant information that the browser will automatically convert into an EDI message and send through secure Internet protocols (such as Hyper Text Transport Protocol Secure or HTTPS) to the other side.
Additionally, if you use web EDI, you do not need to install or manage EDI software or a complex EDI environment. A web browser will do it for you.
This EDI solution facilitates the participation of multiple trading partners across the globe, especially benefiting the regions with limited IT and EDI skills.
Comparison Between Manual vs. EDI Payment Process
To make this comparison more digestible for you, we’ve listed the steps that both processes involve, using the example of a retail business.
Manual Payment Process
- The first step is to place an order. The system notifies the buyer to place the order.
- The buyers manually put data into the purchasing system to create a purchase order (PO). Then, the system prints and mails the order to the vendor.
- Within a couple of days, the vendor receives the purchase order and puts it into the sales order system.
- After printing an invoice, the vendor encloses it with the dispatch or sends it separately through postal mail.
- Finally, the buyer makes invoice entry manually into the accounts payable (AP) system.
This process, along with the exchange of paper documents, may take up to weeks, and if manual data entry leads to errors, the process can stretch more.
The manual payment process involves humans responsible for exchanging payment receipts or purchase orders using papers or computers. This manual transmission of payment data is liable to data breaches, misinterpretations, errors, and inefficiencies.
As an alternative to the manual process, EDI replaces paper-based payment information exchange. It accelerates invoice processing and tracking documents exchange by eliminating human involvement. Here’s how:
EDI Payment Process
- Utilizing EDI software, the procurement system automatically generates purchase orders, translates them to EDI format, and sends them to an internal system.
- The vendor receives the PO within a few minutes and notifies the shipping department. Then, the system generates an EDI invoice and transfers it automatically to the buyer’s AP system.
The EDI-enabled process takes a few hours to complete, helping a retail business handle multiple orders quickly and efficiently.
Since it is an electronic exchange of information, businesses no longer need to appoint staff to send remittance through fax, postal mail, or email (though email is an electronic way, it requires people to write and send emails).
While the manual process is typically grueling and demanding, EDI payment is quick, efficient, and automated, so you do not need to wait longer for the invoice and payment information to be processed. EDI payment helps you do it on the go.
EDI Vs. EFT, and ACH
Many companies and even experienced professionals often use the three terms- EDI, EFT (electronic funds transfer), and ACH (automated clearing house)- interchangeably. They create confusion around the use of these terms.
However, all three terms are thoroughly different. While EDI is only a format for electronic data exchange, EFT and ACH are types of electronic payments.
EFTs, also known as ePayments, are electronically transacted payments that use ACH. ACH falls under the umbrella term of EFT as one of its types, along with wire transfers and other digital payments. ACH involves moving funds between banks.
Both EDI and ACH include remittance information. That’s why they are thought of as the same thing, and ACH is often called EDI payment because the remittance information (such as customer account number) is in the EDI format.
So, to avoid mixing up the terms, remember these key takeaways:
- EFT is an act that defines consumer rights and the bank’s responsibilities to monitor electronic funds transfer. As a general term for any electronic method for transferring funds, EFT covers ACH, debit card, credit card, and other digital payments methods.
- Being a type of EFT, ACH is a famous US electronic payment network featuring direct deposit, vendor payments, payroll, insurance premiums, etc. It is used for processing large debit and credit transactions in batches. ACH payment refers to making a payment that involves moving funds from one bank to another through an electronic clearinghouse network.
- Unlike EFT and ACH, EDI is a format used for exchanging data and messages between computers for various payments and payment-related processes. EDI payment includes remittance information, invoices, and other documents for machine-to-machine data exchange. It provides computers with a common format to interpret payment data.
Why Should You Use EDI Payments?
More than 160,000 US companies are incorporating EDI payments into their business models with the aim to improve their business efficiencies. That’s because EDI covers the back of businesses by automating data sharing processes, improving productivity, and saving costs.
EDI payment achieves this through the automation of manual invoice processing that helps businesses invest more time on other tasks and become more productive.
Using EDI payment, you can automate entering accurate data and ensure reliable information sharing.
Moreover, you can send and receive invoices faster by replacing manual document exchange with the EDI payment method.
In addition to that, you can save money on paper documentation and streamline your supply chain process with the help of EDI 820 payment, a type of EDI transaction.
Using EDI payment is better than manual processes because:
- It helps improve business relationships with partners.
- Through automation, it minimizes processing errors caused by manual data entry.
- It accelerates the efficiency of processing documents.
- It drastically reduces the costs of paper, filing, storage, printing, postage, and retrieving documents.
To Sum Up
With EDI payment, your business life can become easy since it helps you eliminate manual exchange of each individual invoice with your business partners.
EDI payment is a quick, secure, and reliable format for exchange of documents. Being EDI capable helps your business handle transaction data cost-effectively with increased efficiency and accuracy.
So, what’s your plan? Are you ready to go with an EDI payment for your business?