Stands for "Electronic Data Interchange."
EDI is a standardized method for transferring data between business networks. An EDI system translates data from a company's internal system into a common language that can be understood by that company's trading partner's systems. Businesses use EDI to transfer documents like purchase orders, invoices, and inventory documents. By sending this data electronically, businesses save the time that would have been spent printing forms, mailing them, and entering data that they've received into their system.
Two businesses can exchange EDI data in several different ways. They can connect their systems directly, using the Internet to securely send data from one system to another. This process can be cumbersome when dealing with a large number of trading partners, so many businesses use a Value Added Network (VAN), which acts as a virtual post office to facilitate data transfers. VANs route EDI data from one business to another using customer IDs, authenticate the messages and transmitting partner, and notify a business when new data is received. They can provide additional benefits to businesses, like full encryption, analytics, and auditing services.
There are several standard EDI formats in use that specify how documents are formatted and transmitted, like EDIFACT (International), X12 (North America), and TRADACOMS (UK). Each standard has a set of forms and data types that all systems using that standard can process. EDI forms are categorized and specialized to certain tasks, like credit/debit adjustments, shipment and billing notices, and return authorizations.