EDI Transactions | 9 mins read

Guide to EDI Transactions - How to Use It For Your Business

guide to edi transactions how to use it for your business
Chloe Henderson

By Chloe Henderson

Introduction to EDI Services

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Before software and other business technology, companies carried out communication through email and physical documentation. Unfortunately, these methods leave organizations open to the risk of stolen, lost, tampered with, and even fraudulent data. Not to mention, these traditional forms of communication are inefficient, require extensive labor, and increase paper waste.


Over the last couple of decades, new technology has entered the workspace and made it easier and safer to exchange data. Electronic data interchange (EDI) streamlines communication between partnering businesses using computer software.

With EDI transactions, all information is in a standardized format and automatically processed once the receiving system receives the documents. EDI transactions provide a secure and easy way to transmit documents between trading partners without the hassle of manual data consolidation.

What is an EDI Solution?

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Electronic data interchange (EDI) is the virtual exchange of business documents between trading partners. With EDI, companies can send and receive paperwork electronically, eliminating paper waste and wait time.

Digital documentation also enables partners to establish a standardized format to fill out paperwork consistently. By establishing an EDI routing system, organizations can entirely replace traditional mail, fax, and email and connect directly to their partners.

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What are EDI Transactions?

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An EDI transaction is another way to reference business documents transferred between partnering organizations. In a web EDI system, paperwork is standardized and automated to streamline common forms, such as

  • Invoices
  • Purchase order
  • Purchase order change
  • Payments
  • Tracking information
  • Data reports
  • Policies

A minimum amount of data needs to be present in a document before an EDI transaction can occur. Documents that are non-compliant with the set regulations are not transmitted because the information is not complete. These restrictions enable the EDI system to categorize and store documents based on their data to create a well-organized database. Depending on the type of data, each document is assigned a transaction number, or code, making it easy to identify and locate information.

For example, EDI gives every sales catalog the transaction code 832. This enables the translator to instantly recognize the document, extract the information, and store it in its proper place. With EDI transactions, data exchange is efficient, comprehensive, and organized, eliminating the need for manual information consolidation.

Businesses can implement EDI processes by integrating their existing business-to-business (B2B) systems. Advanced solutions are able to connect external companies while protecting sensitive data so that partners can establish transparency and an open line of communication.

What is an EDI Electronic Standard?

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An EDI standard is a format requirement that establishes how a business document must be composed in order to for it to transmit through the system. With these standards, automated systems can indicate where to locate EDI documents.

Each EDI transaction consists of three parts.

  • Element
Data elements refer to the lines of information located in an EDI document. For example, an invoice has data elements, including payment details, supplier, purchaser, and prices. Elements are the smallest part of the EDI standard.

  • Segment
Segments are groups of elements that appear as sections on an EDI document. In the invoice example, the segments would include the supplier's and purchaser's detail sections.

  • Transaction sets
Transactions sets are also known as EDI messages and transactions because once the segments are gathered and placed in the standardized format, they create the final transaction document.

How EDI Solutions Work

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In order to send EDI documents, businesses need to follow three consecutive steps.

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1. Prepare the Documents

First, managers need to gather, consolidate, and organize their data into the appropriate format. For example, users would enter purchase order information into the software's standardized data fields rather than printing and filling out physical paperwork.

Companies can use several methods to prepare their EDI documents.

  • Manual data entries
  • Exporting spreadsheets from databases
  • Reformatting reports into data files
  • Updating installed applications to outputs files ready for translation
  • Installing software with built-in tools that can handle EDI documents

2. Translate the Documents

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After inputting the data, the system must translate and convert it to the standardized EDI format. EDI software can integrate with existing systems to streamline data extraction and conversion, eliminating the use of manual methods.

However, developers may need to intervene to map out the software and determine the best way to route data. There are different translators available that can suit the needs of both small businesses and large enterprises. Therefore, owners should research to determine which system integrators are most comprehensible.

Some EDI service providers offer their own translation options at competitive prices. In this scenario, businesses send their data to the provider, who then facilitates the translation and formatting. However, this can be a hassle, for there must be designated employees that gather and send data manually.

3. Transmit the Documents

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Lastly, businesses need to send their finalized EDI documents to the relevant partners. However, there are several ways that organizations can connect with one another.

  • Connecting via Applicability Statement 2 (AS2)
  • Linking EDI networks
  • Establishing a secure EDI provider network
  • Combining the above methods

Regardless of the transmission method, by creating a direct route between partners, businesses can streamline data exchange.

EDI Integration Terms to Know

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While many modern businesses recognize the value of EDI technology, some companies are still unaware of its relevance. Therefore, owners should take the time to learn EDI terms and how these tools can improve their data exchange and storage.

Acknowledgment

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Acknowledgment refers to the command response that EDI software sends to the document sender to confirm that the information was received. There are different EDI acknowledgments that depend on the type of EDI response and software used.

  • Basic Communications-Level Status Report Message
As previously described, this alert notifies the sender that the document was successfully sent to the recipient. At this point, the information could be sent via spreadsheet, text file, or EDI data fields as it is at the lowest communication level. This type of acknowledgment is used by every EDI tool, from fundamental to advanced software.

  • Message Disposition Notification
A message disposition notification (MDN) is an alert used in AS2 programs, which puts EDI documents into an additional folder to ensure a secure transmission through the internet. This process includes an extra step to decode the extra folder and retrieve the data. Once the information is successfully extracted, the sender receives an alert that the message arrived and was decoded.

  • Functional Acknowledgement Document
The functional acknowledgment (FA) document acts as a digital receipt, sent from the translator of the recipient to the sender's solution. This document confirms that the message was both received and read. In other words, because of the data's correct format, the receiving solution was able to extract the information without error.

  • Business-Level Acknowledgement
A business-level acknowledgment takes FA a step further by alerting the sender that the recipient not only read the document but is taking the appropriate actions as well. For example, if a business receives and begins paying an invoice, the supplier is alerted that someone is fulfilling the outstanding balance.

Advanced Shipping Notice

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An advanced shipping notice (ASN) is a common EDI transaction that alerts businesses of a pending delivery, along with all of the relevant shipping details. Typical information found in ASNs includes the following.

  • Purchase order number
  • Ship notice ID
  • Recipient's address
  • Price
  • Estimated delivery date

Invoice

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An EDI invoice is just like a traditional invoice, except it is digital and standardized. An invoice is a document sent from the supplier to the purchaser that details their order once it is shipped. The invoice information should match the original purchase order approved and sent by the buyer.

Invoices will detail the following.

  • Order specification
  • Payment terms
  • Recipient's Information
  • Supplier's information
  • Shipping details

RESTful Web Services

Representational State Transfer (REST) outlines the restrictions that improve web services' performance. For example, some RESTful services only use the hypertext transfer protocol (HTTP), making data exchange and analysis easy since every document is consistent.

REST programs are often compared to Simple Object Access Protocol (SOAP) architectures as they both simplify data collection for efficient transmittal.

Translation

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Translation refers to the conversion of data during the transferral between translators. Inconsistent data must be reformatted into a standardized layout until EDI systems are able to read the documents.
After translating the data, the solution can identify the sender's name, order, and message and send it to the intended recipient.

Communication Options for EDI Guide

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There are several EDI communications options that tailor to businesses' specific data needs. However, the two primary options include AS2 and VAN.

EDI AS2

AS2 accepts all types of data formats, such as EDI and XML, using HTTP through a verified server. This option includes extra encryption for unlimited data at an affordable rate.

Most modern companies prefer AS2 because of its easy integration with both internal and external business solutions. This program requires notifications that alert the partner whenever a new document is delivered. Businesses can deploy AS2 using their in-house IT department or recruiting a third-party vendor.

EDI VAN

An EDI value-added network (VAN) uses a single connection to facilitate EDI transactions. This enables VAN and private networks to communicate securely.

The VAN moves much like a traditional delivery system, in which a message is taken from the sender and given directly to the recipient. By streamlining the delivery process, businesses reduce the EDI price of each individual document. However, relying solely on VAN has become an outdated business strategy, as different communication options offer various connectivity and integration methods.

Frequently Used EDI Transaction Codes

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There are numerous EDI transaction codes that are specific to various industries and businesses throughout the supply chain.

Supply Chain EDI Codes

  • 753 Request for Routing Instructions
  • 754 Routing Instructions
  • 816 Organizational Relationships
  • 818 Commission Sales Report
  • 830 Planning Schedule w/ Release Capability
  • 832 Sales Catalog
  • 840 Request for Quotation
  • 841 Technical Information

  • 842 Nonconformance Report
  • 843 Response to Request for Quotation
  • 845 Price Authorization
  • 846 Inventory Inquiry
  • 847 Material Claim
  • 848 Material Safety Data Sheet

EDI Transportation and Logistics Codes

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  • 104 Air Shipment
  • 106 Motor Carrier Rate Proposal
  • 120 Vehicle Shipping Order
  • 121 Vehicle Service
  • 128 Dealer Information
  • 214 Transportation Carrier Shipment Status
  • 227 Trailer Usage Report
  • 301 Confirmation
  • 312 Arrival Notice
  • 317 Delivery Order
  • 422 Equipment Order
  • 440 Shipment Weight
  • 466 Rate Request
  • 859 Freight Invoice
  • 998 Set Cancellation

Manufacturing and Retail EDI Codes

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  • 101 Address List
  • 140 Product Registration
  • 170 Revenue Receipts Statements
  • 503 Pricing History
  • 504 Clauses
  • 850 Purchase Order
  • 851 Asset Schedule
  • 852 Product Activity Data
  • 862 Shipping Schedule
  • 869 Order Status Inquiry
  • 879 Price Information
  • 890 Contract Management
  • 940 Warehouse Shipping Order
  • 943 Warehouse Stock Transfer Shipment Advice
  • 947 Warehouse Inventory Adjustment Advice

Finance EDI Codes

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  • 132 Human Resource Information
  • 155 Business Credit Report
  • 198 Loan Verification
  • 200 Mortgage Credit Report
  • 810 Invoice
  • 812 Credit/Debit Adjustment
  • 820 Payment Order
  • 822 Account Analysis
  • 824 Application Advice
  • 827 Financial Return Notice
  • 844 Product Transfer Account Adjustment

Communication EDI Codes

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  • 102 Associated Data
  • 242 Dara Status Tracking
  • 815 Cryptographic Service Message
  • 868 Electronic Form Structure
  • 993 Secured Receipt
  • 997 Functional Acknowledgement
  • 999 Implementation Acknowledge

Businesses, regardless of their industry, should consider how EDI transactions can improve their data exchange practices.

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