What Are EDI Transactions? A Complete Guide with Examples
EDI, or Electronic Data Interchange, facilitates business-to-business communication (B2B) by providing a shared language that is understood by both sides. EDI transactions are individual messages sent between businesses via the EDI standard. Informally speaking, EDI provides the language and grammar for intra-business conversations, and EDI transactions function like individual sentences or statements within those conversations.
What are EDI transactions?
In a more formal sense, EDI transactions are standardized exchanges of digital business documents between disparate computer systems. Data that would have historically been printed onto paper documents, like purchase orders and shipping documentation, can be transferred digitally as EDI transactions. This allows organizations to automate the processing of these documents via computer systems rather than manually read through printed information.
EDI messages perform an important function for any business that depends on coordination with external entities for success. Industries that commonly depend on EDI transactions include:
The benefits of EDI transactions
The primary advantage of utilizing EDI transactions for B2B communication is the ability to leverage automated computer systems for processing critical business documents. Like other forms of business automation, the benefits of automating B2B processes include:
- Saving time by avoiding manual data processing and entry
- Improving response rates and avoiding slowdowns
- Better data validation and correction
- Preventing errors in data transcription
- Increased transparency for reporting and audits
Since EDI is designed to be understood and processed by computers, IT teams can build out fully automated workflows that take EDI data and integrate it into a larger business data context. The ability to streamline the flow of data from external parties all the way to internal back-end systems is called end-to-end integration.
For example, invoices received from a trading partner may need to be integrated into an accounting platform to ensure that appropriate funds are set aside. Ideally, companies should not need any manual intervention to ensure that the reception of an invoice triggers the appropriate update in QuickBooks or some other accounting system. Fully end-to-end integration ensures that every step of the process is automated, such that a company’s internal data ecosystem is always responsive to external B2B communication in real-time or near-real-time.
As organizations grow, the need for standardized and automated B2B communication becomes more pressing. Manually processing purchase orders and invoices over email may be sufficient for small operations, but quickly becomes unsustainable as the number of transactions increases. A fully end-to-end EDI solution ensures that communication with all trading partners is fast, efficient, and error-free.
EDI transaction codes
Each EDI transaction includes a code that identifies it as a particular type of EDI message. This enables streamlined processing of B2B communication, as each EDI document can be processed according to the type of information it contains.
EDI messages can perform many different functions within the context of a B2B conversation – e.g. requesting a service, asking for additional information, confirming a date & time, or responding to a prior request. The EDI transaction code frequently helps indicate the role that a particular message is intended to play.
Common EDI codes include:
- 850 Purchase Order – messages used to initiate a purchase of goods, often sent from a retailer to a supplier or manufacturer
- 855 Purchase Order Acknowledgment – messages used to respond to prior purchase orders with an indication of whether the purchase can be fulfilled
- 810 Invoice – messages used to request payment for a previously arranged purchase of goods or services, often sent by a supplier or logistics provider
- 820 Payment Order – messages sent in response to invoices that include payment details and streamline electronic funds transfer
- 846 Inventory Inquiry – messages sent to query the level of inventory for a specific product within warehouses, retail stores, or other storage locations
- 856 Advance Shipment Notice – messages used to indicate the time and place that goods will be shipped to a retail location or end customer
- 837 Healthcare Claim – messages sent to healthcare insurance companies to request payment for healthcare services provided
- 835 Claim Payment – messages sent in response to healthcare claims that confirm the accepted status of claims and provide payment details
- 204 Load Tender – messages sent to request reserved space on trucks, ships, and planes to carry physical goods
- 210 Carrier Freight Invoice – messages sent in response load tenders that confirm shipment details and request payment
EDI integration solutions must handle messages with many different transaction codes in order to facilitate B2B conversations. A single conversation with a trading partner is likely to involve multiple EDI transactions, each with a separate transaction code. The full value of EDI integration comes from the ability to support sophisticated conversations with business partners by both sending and receiving EDI messages of many types.
Examples of EDI transactions
Since individual EDI transactions function as sentences within a larger B2B conversation, it is helpful to examine EDI examples within their conversational context.
One common EDI conversation involves retailers or e-commerce and the suppliers and manufacturers that provide the goods that they sell. These conversations are frequently initiated when a retailer sends an 850 Purchase Order to a supplier, indicating that they need more product. The supplier may respond with an 855 Purchase Order Acknowledgement and then an 810 Invoice to receive payment for the purchased goods. Finally, the retailer might respond with an 820 Payment Order alongside a transfer of funds.
Another example of an EDI conversation involves healthcare insurance providers and healthcare service providers like hospitals and clinics. After a patient receives treatment, the service provider may send an 837 Electronic Claim to the insurance provider to receive payment for the operation. The insurance provider validates the claim and then responds with an 835 Claim Payment to satisfy the bill sent by the clinic.
A final example involves logistics and supply chain companies. These companies facilitate the shipment of goods by sending a 204 Load Tender to carriers like FedEx or UPS in order to reserve truck, ship, or plane space. The carrier may respond with a 210 Carrier Freight Invoice to confirm the details of the shipment and request payment for the service. Finally, the logistics provider may send an 856 Advance Shipment Notice to the end recipient of the shipment so that they are aware of the timing of their expected delivery.
Several EDI transaction patterns can be found by focusing on the specific transaction codes involved in these example conversations:
- Requests for product or service (850 Purchase Order, 204 Load Tender)
- Requests for payment (810 Invoice, 837 Electronic Claim)
- Responses to requests (855 Purchase Order Acknowledgment, 835 Claim Payment)
From these examples, it is clear that EDI transactions enable businesses to invoke the services of other companies in the course of their business operations. Ensuring that EDI integration is fully end-to-end and automated ensures that invoking external services or purchase external products does not create inefficiencies or slowdowns for a company.
Integrating EDI transactions
Exchanging critical business data with external trading partners is often only half of the puzzle for modern enterprises. While EDI transactions are excellent at facilitating B2B conversations, EDI data is not compatible with other internal data systems like databases, ERP systems, CRM applications, and data warehouses. This turns out to be a problem for modern businesses that need to trigger back-end business processes in response to EDI messages received from trading partners.
For example, a manufacturing company that receives a purchase order from a retail partner needs to perform several back-end operations before responding via EDI – e.g. checking inventory, allocating warehouse space, confirming contract status, etc. Since back-end systems like databases and ERP platforms are integral to these operations, the EDI data needs to be integrated into these back-end systems before the conversation can continue.
This introduces the need for integrating EDI with back-end systems business processes via EDI integration & mapping. EDI mapping restructures the contents of an EDI message to more closely resemble other standard data models. Once restructured, the payload from an EDI message can be integrated into back-end systems to ensure that external transactions are automatically reflected in a company’s internal data ecosystem.
EDI integration & mapping are also frequently required for data flowing in the opposite direction –sending outbound EDI messages rather than processing inbound messages. Often, an event or trigger in a back-end system is the impetus for an EDI transaction in the first place. For example, a retailer’s inventory management system may send an alert when a particular product is dangerously low on stock. This kind of back-end event is what causes a retailer to send an EDI document like an 850 Purchase Order to a manufacturer. Thus, the ability to extract data from a back-end system like an inventory management system, map that data into an EDI document, and send that document out as an EDI transaction is critical to an efficient flow of data between businesses that depend on each other’s services to operate.
Once EDI integration & mapping has been configured, data can flow seamlessly from external trading partners – via EDI – to back-end systems and vice versa. This ensures that B2B conversations can be fully automated within the context of business processes that depend on or produce EDI data. Only once the EDI data can flow automatically from trading partner to back-end system and vice versa can an EDI implementation qualify as truly end-to-end.
CData EDI integration
CData facilitates reliable B2B communication and EDI transactions through fully end-to-end EDI automation. CData’s enterprise B2B automation platform, CData Arc, simplifies and streamlines every technical challenge involved in implementing EDI transactions within your business infrastructure. Arc is a software platform that empowers your team to build out customized automated workflows that send, receive, process, and generate EDI transactions according to your specific needs.
CData Arc supports every major EDI standard, transaction type, and message, and provides reliable file transfer to exchange EDI documents with any number of trading partners. To facilitate fully end-to-end EDI integration, Arc can also integrate with every popular back-end database, data warehouse, and business application like ERP or CRM systems.
Get started with a free trial of CData Arc today.
