EDI in E Commerce - What, Why and How?

There was a time when emails transformed the way companies communicated with each other regarding important purchases and their corresponding documents. It broke the barriers that traditional methods of information exchange posed. It drastically reduced the amount of paperwork filed to process an order. However, the biggest advantage emails gave companies is that orders could be processed much faster than post based communication. 

Nevertheless, e-commerce companies wanted to improve upon emails as well. Because of this, Electronic Data Interchange, or EDI, was born. It is a faster, more direct method of transferring documents and data between companies. 

Drawbacks of email-based document transfer

In B2B e-commerce, the long process of purchasing items begins with the purchasing department of the buying company generating a purchasing order manually and sending that over email to the supplier.

The vendor company then must process the request and generate an invoice which is sent back to the buying company.

In the last step, the buying company processes the invoice and adds it to the internal databases and systems of the company.

The biggest drawback of the system is that the entire transaction is still dependent on human intervention and processing, and therefore subject to human errors. EDI has efficiently been able to circumvent human interference and ensure that the documents are registered in the respective systems for processing.

With Electronic Data Interchange, you can:

Create structured business documents in standardized formats.

Enable direct communication between different systems of the e-commerce network.

Automate the generation and distribution of the same documents.

For an E-commerce Company, what kind of documents can be generated and distributed?

E-commerce companies are probably the largest generators of invoices and other documents pertaining to sales and purchasing. With EDI, a company can easily generate the following documents in a standardized method.

EDI Documents:

  • Invoices
  • Purchase Orders
  • Shipping Requests
  • Acknowledgements
  • Financial Information Letters

Even within the organization, e-commerce companies can easily transfer documents to and from local databases using EDI. In fact, ensuring that there there is no latency in the transfer of information between the sales, purchasing, manufacturing, distribution and finance departments of an organization will make auditing and staying compliant with laws a breeze.

What are the steps in an EDI system? 

The biggest advantage of using an EDI system is the simplicity it brings to the operations of an e-commerce company. Here is how you can use EDI to create and send invoices and other documents.

  1. Employees must create a document or database in which the raw inputs pertaining to a document is recorded. This could be a simple excel file in which inputs like client name and id are entered. 
  2. The EDI software extracts data from the input document and creates an EDI standard document which is more human readable. This document can be a purchasing order or invoice generated using the inputs from the input document.
  3. The output document should be in a format which is agreed upon by both the buyer and seller. 
  4. The document is then electronically transmitted to the receiving network.
  5. Once your partner receives the file, their company can generate the acknowledgement document in a similar way and send it back to you.
  6. Please note that advanced EDI softwares like IQDox will allow you to digitally sign the document to make things easier for you.

Benefits of EDI in E-Commerce

Now that you have understood how EDI in e-commerce works and why it is important, let’s look at the direct benefits of EDI.

Eliminates Data Entry Errors: Since the documents are communicated between the systems directly, the chances of man made errors are virtually zero. If the entire system is automated, it is even more beneficial for auditing and compliance monitoring.

Faster Processing: EDI allows you to process orders as soon as you receive them. This allows you to come across as a reliable partner for your clients while also letting your EDI system take care of internal logistics management as well.

Easy Data Transmission: Since the data is present in electronic format, it hardly takes a few seconds to send it across the globe to another system.

Reduced Paperwork: Like we mentioned earlier, EDI has drastically reduced the paperwork moving in and out of an organization for a single order. This makes companies more environment friendly, while also ensuring that no copy of the document can be tampered with. With digital signatures, EDI has truly transformed the way orders are processed.

Cost Effective: As you can see, EDI has cut down the time, energy and resources which were previously spent on processing orders manually. With EDI, the entire process has become a one man and one-time job, making it one of the most cost-effective solutions for Electronic Data Interchange.

Standardized Communication: Since the format for the document which has to generated is pre-agreed upon, it makes it easier for companies to stay compliant with internal and external regulatory bodies.

Technology is constantly evolving to make things extremely easy for us. EDI is one such transformative technology which has brought about a paradigm shift in the way companies communicate with each other. IQDox is a leading EDI software company which has a high-end solution to create, digitally sign and automate the sending and receiving of electronic data. To know more about how we can help you, get in touch with us now.

Published: 03/01/2019