EDI is a simple abbreviation of the term ‘Electronic Data Interchange’ which in itself is a technology used for the automated exchange of business documents from one computer to another in a standard electronic format.
It enables businesses to exchange purchase orders, invoices, advance shipping notices, and other business documents directly from one business system to the other, without the need for any human intervention. Involving people in the processing of documents slows down the process as a whole and also increases the likelihood of mistakes being made. Instead, EDI system documents are sent directly to the relevant program on the recipient’s system, where processing can begin straight away.
Advantages include an increase in processing speed, operational cost savings, error reduction and improved relationships with business partners. There are a number of global standards for electronic file transfer, examples include EDIFACT, TRADACOMS, UN/EDIFACT. Because the documents are processed by computers (as opposed to people), a standard format must be used so that the computing systems of business partners can read and understand the documents.