EDI is an acronym for Electronic Data Interchange. It is a paperless trade exchange that allows common business forms such as purchase orders and invoices (transaction sets) to be transferred using electronic file standards. It replaces mailing and faxing with computer to computer communications through VANs or Value Added Networks. A combination of these two events briefly describes what EDI is about.

Most often the case a company is forced to do EDI, in order to continue to do business with a large supplier. Moving a company to EDI requires knowledge and understanding of the EDI business methods and technology. Once successfully up and running, it provides effective document handling with minimal human intervention. Addition of more trading partners to the system only costs in setup time, not in day to day operations. This is where EDI savings are realized, through fast response, error free and efficient handling of accounting transactions.

There are many standards of EDI defined. Two of the most popular are ANSI-X12, and EDIFACT.

ANSI-X12 is a standard developed by the American National Standards Institute (ANSI) to define EDI business documents. It is a wide spread standard supporting wholesale and retail distribution type businesses. Each of these standards may have several hundred transaction sets (such as invoices, advance ship notices and purchase orders) to support many different industries. Each company that chooses to do EDI decides on how they wish to implement the particular transaction set by creating what is known as an implementation guide for each transaction set.

EDIFACT is a European standard and is also being considered by the Canadian government.
 

A VAN is an independant company who provides a forward/storage system (mailbox), for EDI transmissions between trading partners. To visit the sites of some popular VAN's select here.