Article

What is an EDI Payment?

1 August 2023

Safeguarding customer and vendor information is crucial for every business.

This post explores EDI payments and how you can leverage Unimaze’s EDI solutions to seamlessly manage the flow of business transactions while safeguarding your trading partner’s information.

Safeguarding customer and vendor information is crucial for every business.

However, keeping essential information such as client data or vendor bank details can be challenging using traditional methods like paper invoicing.

Mistakes can lead to security breaches, communication delays, misinterpretations, and errors.

Enter EDI (Electronic Data Interchange), an encrypted and secure end-to-end document providing an alternative solution to process and track data with paper.

This post explores EDI payments and how you can leverage Unimaze’s EDI solutions to seamlessly manage the flow of business transactions while safeguarding your trading partner’s information.

What are EDI Payments?

An EDI payment is a solution for businesses to exchange payment information electronically.

Side Note: EDI doesn’t refer to money transfers. Instead, it refers to businesses securely exchanging data related to payments.

For example, trading partners that exchange payment data such as purchase order numbers, payer bank account details, bills of lading, or bank account info can leverage EDI payments to interchange this data, eliminating the need for paper documents.

EDI payment automation is efficient for cross-border payments or complex B2B transactions — for instance, export-import payments typically involving three parties. EDI payments ensure each trading partner receives relevant info while maintaining data security.

Examples of EDI Transactions

Here are some other scenarios where an EDI payment can be used.

  • EDI 139 (Student Loan Guarantee) — used by lenders to relay information to colleges and students.
  • ED1 812 (Credit/debit Adjustments) — this notification lets business partners know about debit or credit adjustments.
  • EDI 828 (Debit Authorization) — payers banks send debit authorization messages to other financial institutions when they process electronic transactions such as Automated Clearing House (ACH) payments.
  • EDI 820 (Payment Receipt) — used to transmit electronic payment data between merchants and customers.

Types of EDI Payments

EDI solutions fall into two main categories.

Web EDI

A Web EDI runs on an internet browser enabled by a secure HTTPS protocol. Businesses can add multiple trading partners to their web EDI network. A web EDI solution is excellent if your business doesn’t have EDI development resources.

Direct or Point-to-Point EDI

Unlike web EDI, point-to-point for direct EDI is a private network connection between two trading partners. You cannot add a third party to the network. Large businesses can benefit from direct EDI to transmit transaction data to their business partners.

How Do EDI Payments Work?

An EDI payment digitizes payment data exchange traditionally conveyed through paper documents.

Here’s an example of how EDI payments work when a large business orders from its suppliers.

  • The procurement department generates and uploads a purchase order to the EDI software.
  • The EDI software extracts all the data, secures it into an EDI format, and sends the purchase order to the vendor's system.
  • The vendor receives the EDI message and ships the goods.
  • The vendor generates an invoice, converts it into an EDI, and sends it to the retailer's Accounts Payable system.

Benefits of EDI Payments

Here are some of the advantages of EDI payments.

Better Business Relationship with Your Trading Partners

EDI payments can help your business verify payment request data quickly, fast-tracking the invoice payment process.

A manual data entry process that relies on your AP department to receive PDF vendor invoices, for instance, can significantly derail payment processing. Besides delaying payment-related processes, documents can get lost or damaged in transit.

Further, your B2B trading partners can benefit from EDI payment as it enables them to maintain a standard format for vendor payment data and streamline uploading documents to their ERP systems.

Improved Data Security

EDI is anchored on the ANSI x12 standard, which uses Value Added Network (VAN) transmission. The best part? You can control EDI because it’s a closed network.

You can, for instance, create an EDI network between your business and other organizations, leaving out everyone else. That way, you can control your network, ensuring you only transmit payment data to the right partners.

EDI is more secure than ACH and EFT.

Faster Processing Times

EDI networks run on the internet for payment order or remittance information transmissions between trading parties. Because communication happens almost in real-time, EDI results in a streamlined accounting process.

ACH processes, for example, require banks to transmit and process information in batches. If you miss the batch deadline, you must wait for the next business day for your payment requests to be processed.

With EDI, however, trading parties can create a business-to-business relationship, so there’s no need for batch processing. EDI transactions are clear in real time, fast-tracking processing times.

Cost-effective Payments at Scale

You can create a direct deposit or web EDI payment network to simplify your electronic payments.

In addition, you can automate the payment operations within your EDI network, eliminating the expensive and ineffective manual process.

For example, you can match documents and transfer payments to verify your vendor’s request, streamlining your transaction.

Further, your business can receive payment owed quickly, cutting down cash application times and establishing a predictable cash flow without bending your budget.

Enhanced Productivity

EDI payments eliminate the time-consuming, ineffective manual payment process. It ensures that your accounting staff doesn’t waste time identifying errors in your cash flow or manually matching documents and mailing them.

Comparing EDI, ACH, and EFT Payments

While EDI, ACH, and EFT are modes of electronic payments, it is essential to understand their differences.

EDI vs. ACH

Here’s how an ACH payment is different from an EDI one.

ACH Payments

Are deployed on the ACH network run by National Automated Clearing House Association (NACHA)

  • Are instant
  • Require manual bank approvals
  • Are confined to the U.S.

EDI Payments

  • Are implemented on private networks run by a business or its 3rd party service provider
  • Are instant
  • Help automate common payment processes
  • Are not confined to a specific geographical location

EDI vs. EFT

Electronic Funds Transfer (EFT) refers to all forms of electronic payments. EFT includes a set of laws and regulations defining consumer rights and standards for electronic payment providers to follow.

That said, an EDI payment process is a form of an EFT. On the other hand, EFT covers everything from ACH to wire transfers to credit or debit card payments.

Factors to Consider When Using EDI Payments

While EDI is excellent for safeguarding payment details, you must consider a few things before deploying your solution.

Infrastructure Security

The security of your infrastructure is crucial for EDI payments. Here, factors such as strong encryption, secure network protocols, and robust firewalls come into play.

In addition, you want to limit internal unauthorized access to ensure you onboard your partner’s business invoices in a close network before exchanging payment-related information.

Selecting secure EDI software and reliable hosting platforms also plays a significant role in infrastructure security.

Side Note: Regular security audits can identify potential vulnerabilities even with a robust infrastructure.

Staff Training

Effective utilization of an EDI payment system hinges on properly trained staff.

Your team should understand the system's operations and know best practices and potential risks to keep payment information secure.

Training helps reduce human errors that could lead to data breaches or financial losses. Educating staff on handling sensitive data, troubleshooting issues, and ensuring smooth operations is essential.

A well-trained staff will operate the system efficiently and play a significant role in maintaining security and compliance.

Besides offering a robust EDI solution, Unimaze will train your team to use the EDI system for processing payments without exposing bank information transaction details.

Data Backups

Regular data backups are vital to maintain business continuity and protect against data loss for any EDI payment transaction.

This involves deciding on a backup frequency that suits the volume and importance of data, and a secure and reliable method of backup, whether onsite or offsite.

A good backup strategy includes disaster recovery planning and preparing for system failures or cyberattacks. Regular testing of backup procedures is also key to ensure that recovery can happen swiftly and completely in the event of data loss.

Costs

Implementing an EDI payment system requires consideration of various costs, including:

  • The initial investment in hardware and software
  • Ongoing costs for maintenance and upgrades
  • Operational costs like staff training.

Indirect costs, like downtime during implementation and potential transaction fees

While evaluating these costs, you also consider the potential benefits of speed, efficiency, and accuracy of transmitting payment data, along with improved vendor relationships and streamlined operations.

A well-executed cost-benefit analysis is critical before implementing an EDI system.

Are EDI Payments Right for You?

EDI payments are excellent for almost every business type.

If your business routinely sends and receives payments from customers and vendors, leveraging EDI payments can help streamline your Account Payable and Account Receivable payment processing.

You can improve your business’s efficiency by automating payments with a good EDI solution. That way, you will eliminate the manual payment process, including paper invoices, purchase orders, and other business documents.

As a B2B organization, you can use EDI payments for your suppliers and customers. For large companies, implementing EDI payment is almost always a requirement.

Effective EDI involves partnering with a reliable third-party provider like Unimaze.

Our services are tailored to your needs, including setup, integration, maintenance, and support.

Our AI-powered solution ensures secure and seamless data exchange while enhancing business document processing speed across diverse platforms.

We prioritize customer satisfaction, offering reliable expert support to resolve any issues or queries you may have quickly.

Talk to an EDI expert to discuss your needs.

Book a Meeting

Frequently Asked Questions (FAQs)

What are Examples of EDI Transactions?

Common EDI transactions include:

  • Purchase Order (EDI 850)
  • Invoice (EDI 810)
  • Advance Ship Notice (EDI 856)
  • Functional Acknowledgment (EDI 997)
  • Payment Order/Remittance Advice (EDI 820)
  • Healthcare Claim (EDI 837)

What Are the 4 Types of EDI?

There are several types of EDI, each varying in complexity, cost, and required infrastructure. Here are the most common four:

  • Direct EDI or Point-to-Point EDI: This type of EDI involves directly exchanging documents between businesses, usually via a secure and private network.

It requires substantial investment and technical capabilities but provides full control over the process.

  • EDI via VAN (Value-Added Network): VANs are private network providers facilitating EDI business transactions.

They act as the middleman, providing secure and reliable connectivity, and often handle tasks like message encryption, transmission, and even translation.

  • EDI via AS2 (Applicability Statement 2): AS2 specifies how to transport data securely and reliably over the internet.

It provides security for the transport payload through digital certificates and encryption.

  • Web EDI or Cloud-based EDI: This is a service hosted on the internet that allows users to send and receive EDI transactions using web forms or interfaces. It is a simpler, more affordable option suitable for smaller businesses, but it may lack some capabilities that larger organizations need.

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