EDI and Electronic Payment System

Introduction and definition EDI:-

Stands for "Electronic Data Interchange." EDI is a standardized method for transferring data between
different computer systems or computer networks. It is commonly used for e-commerce purposes,
such as sending orders to warehouses, tracking shipments, and creating invoices.

EDI (Electronic Data Interchange) is the transfer of data from one computer system to another by
standardized message formatting, without the need for human intervention. EDI permits multiple
companies -- possibly in different countries -- to exchange documents electronically. Data can be
exchanged through serial links and peer-to-peer networks, though most exchanges currently rely on
the Internet for connectivity.

An EDI message contains a string of data elements, each of which represents a singular fact, such as a
price, product model number, and so forth, separated by delimiter. The entire string is called a data
segment. One or more data segments framed by a header and trailer form a transaction set, which is
the EDI unit of transmission (equivalent to a message). A transaction set often consists of what would
usually be contained in a typical business document or form.

When sending an EDI document, both parties or trading partners must adhere to the same set of rules.
These standards define where and how the information from the document will be found. Translation
software processes the information differently for sent and received messages and performs a
complete audit of each step to ensure information is sent or received in EDI format. When the
translator on the receiving computer reads a document, it knows where to find the buyer's company
name, order number, purchase items and price, for example. This information is then sent to the
receiver's order entry system without necessitating manual order entry.

EDI applies to documents such as purchase orders, invoices, shipping notices and commission sales
reports, as well as other important or classified information. For example, an insurance company can
verify that an applicant has a driver's license through an EDI exchange.

EDI is primarily used by large companies to have a uniform processing system, enabling efficiency.
Cost, speed, accuracy and efficiency are the major benefits of EDI. The system is expensive to
implement and usually requires help from a consultant that specializes in the field.

EDI competes with XML, which relies on tags to organize data. It can also compete with application
programming interfaces -- code that allows two software programs to communicate. While similar to
EDI, API lacks a standard for users, making it hard for different businesses to share information via
APIs.

Using EDI systems eliminates the need -- and therefore cost -- to print, file, store, post and retrieve
paper documents. The goal is to get rid of paper and have everyone working with the same invoice so
that information is processed and read easily.

Some users, such as doctors transmitting healthcare information, may find EDI more burdensome than
paper, but the standardization and electronic conversion pays dividends in the long run.

Automating paper-based tasks improves data quality, and transactions are exchanged within seconds
or minutes instead of days or weeks. EDI frees up staff time to work on more important tasks.
Business-critical data is sent on time and tracked in real time by automating the transfer of data
among applications across a supply chain.

EDI layered architecture?

EDI Layered Architecture. EDI has semantic Application Layer, Translation Layer, Packaging and
Infrastructure Layer. The EDI semantic layer describes the business palliation that is driving EDI.

For a procurements application, this translates into requests for quotes, price quotes, purchase orders,
acknowledgement and invoices. This layer is specific to a company and the software it uses. In other
words, the user interface and content visible on the screen are tailored and customized to local
environments.

The information seen at the EDI semantic layer must be translated from a company-specific from to a
more generic or universal form so that it can be sent to various trading partners, who could be using a
variety of software applications at their end.

To facilitate the transfer of computer files between two “trading partners’ requires that the computer
application of both sender and receiver use a compatible format EDI document exchange. The sender
must use a software application that creates an EDI file format similar to what the recipient’s computer
application can read. It is not mandatory that both have identical file processing systems. When the
trading partner sends a document, the EDI translation software converts the proprietary format into a
standard mutually agreed on by the processing systems. When a company receives the document,
their EDI translation software automatically changes the standard format into the proprietary format
on their document processing software so that the company can manipulate the information in
whatever way it chooses to.

The EDI transport [layer cress ponds closely with the no electronic activity of sending business form
from one company A to company B. The business form could be sent via regular postal service,
registered mail, certified mail, to private carrier or simply faxed between the companies.

EDI document transport is far more complex than simply sending e-mail messages or sharing files
through a network, a modem or bulletin board. These EDI documents are more structured than e-mail
and typically are manipulated or processed more than e-mail messages by the sending and receiving
software.

Standard Layer- This layer of EDI architecture defines the structures of the business form and
some content which are related with the application layer. physical Layer- The
physical layer of EDI also called the infrastructure layer. This layer defined the component
communication path for EDI data transaction.

Also, what are EDI standards? EDI standards are the requirements for the format and content
of EDI business documents. EDI standards determine the correct order and location of the units of
data in an EDI document. All EDI transactions are defined by EDI standards. A transaction set in
the EDI Standard is comparable to a paragraph or a document.

Secondly, what are the components of EDI?

Components of Electronic Data Interchange EDI

• Modem – It is a hardware device that transmits data from one computer to another.

• VAN – A network that connect the computer system of one organization to another.

• Point to Point link – A direct communication link between two computers.

What are the benefits of EDI?

The major benefits of EDI are often stated as speed and accuracy:

• EDI can speed up your business cycles by 61%.

• Improves data quality, delivering at least a 30—40% reduction in transactions with errors—
eliminating errors from illegible handwriting, lost faxes/mail and keying and re-keying errors.

EDI Technology and standard

EDI standards are very broad and general because they have to meet the need of all businesses.

EDI share a common structure:-

1. Transaction set is equivalent to business document, such as purchase order. Each transaction set is
made up of data segments.

2. Data segments are logical groups of data elements that together convey information, such as
invoice terms, shipping information or purchase order line.
3. Data elements are individual fields, such as purchase order number, quantity on order, unit price.

The need for EDI standards:-

EDI provides on electronic linkage between two trading partners. To send documents electronically to
each other, firms must agree on a specific data format and technical environment.

EDI standards and initiatives:-

National standards:-

1. ODETTE:- an EDI format developed for European motor industry. ODETTE stands for organization
for data exchange by tele transmission in Europe.

2. TRADACOMS:- it is UK national standard, which is developed by ANA (Article number

association) in 1982.

ANSI ASC X12 (American national standards – X12) – X12 is a standard that defines many different
types of documents, student loan applications, injury and illness supports and shipment and billing
notices.

International standards –

EDIFACT – (Electronic data interchange for administration, commerce and transport) was developed
during 1990’s with a subset of EANCOM, which is the most widely used dialect of EDIFACT in
international retail and distribution sector.

UN/EDIFACT – (United nations/electronic data interchange for administration commerce and

transport) is an international set of EDI standards that are published by united nations trade data
interchange (UNIDID).

EDI communication and transaction

What are EDI Transactions?

Essentially, an EDI transaction is just another term for a standardized business document. Companies
and trading partners exchange these documents using EDI standards to automate and streamline
purchase orders, invoices, acknowledgments, payments, tracking, and other reports.

Any EDI transaction document must contain a certain minimum amount of vital data. Without these
requirements, an EDI document becomes useless. Adhering to strict EDI feed formatting rules helps
define precisely how and where each part of data on the document will be found and used. Each
document is assigned one of the dozens of transaction numbers from the EDI public format.

For example, in EDI order processing, a purchase order (PO) is given the EDI transaction number 850
and the invoice transaction number is 810. So, when an EDI translator receives an EDI 850 PO
document, it instantly recognizes the order number, the company name of the buyer, items in the
order, and the price per item.

It’s these streamlined transactions that improve the overall data transfer process through the efficient
EDI integration and seamless automation of B2B platform workflows between internal and external
systems, applications, and cloud ecosystems.

Some of the biggest corporations in the world – industry-dominating giants – like Walmart
mandate EDI compliance through the use of AS2, meaning most companies must be EDI capable.
Anything you purchase, any insurance document you file, any government form you report, any text
message you send – it all requires EDI in some way, shape, or form.

Because there are hundreds of EDI transaction types, organizations follow designated EDI standards to
ensure uniform formats for the inter-industry electronic exchange of business documents between
trading partners.
What is an EDI Standard?

EDI standards are the requirements for the format and composition of EDI documents. EDI standards
delineate the correct order and location of units of data in a given EDI document.

All electronic data interchange transactions are made up of the following parts:

Element - The data elements within an EDI document are individual lines of information. For example,
a document like a purchase order or an invoice will contain data elements such as city, state, item
number, or cost. Elements are the smallest component in an EDI standard.

Segments - Segments are composed of a group of elements. In an EDI document, each section of the
document is described by a particular segment. Examples of segments include the beginning of a
purchase order, the company, street addresses, etc.

Transaction Sets - Also referred to as an EDI message or EDI transactions. Once segments are
collected in a predetermined format, they form the completed EDI document or transaction sets.

Electronic data interchange works depending on which EDI standards are required to format a
message. Ultimately, since EDI documents are managed and interpreted by computers, transferred
data must be formatted in a way that computers of both parties can understand. The main purpose of
EDI standard formats is to minimize communication complications and costs of redundancies or fines,
often called chargebacks.

Benefits and application of EDI with example

Benefits of EDI

Lower operating costs

• EDI lowers your operating expenditure by at least 35% by eliminating the costs of paper,
printing, reproduction, storage, filing, postage, and document retrieval. It drastically reduces
administrative, resource and maintenance costs. EDI support can lower other costs as well,
such as Matson Logistics who reduced their ASN fines 12% by switching to a more efficient EDI
solution.

Improve business cycle speeds

• Time is of the essence when it comes to order processing. EDI speeds up business cycles by
61% because it allows for process automation that significantly reduce, if not eliminate, time
delays associated with manual processing that requires you to enter, file, and compare data.
Inventories management is streamlined and made more efficient with real-time data updates.

Reduce human error and improve record accuracy

• Aside from their inefficiency, manual processes are also highly prone to error, often resulting
from illegible handwriting, keying and re-keying errors, and incorrect document handling. EDI
drastically improves an organization’s data quality and eliminates the need to re-work orders by
delivering at least a 30% to 40% reduction in transactions with errors.

Increase business efficiency

• Because human error is minimized, organizations can benefit from increased levels of efficiency.
Rather than focusing on menial and tedious activities, employees can devote their attention to
more important value-adding tasks. EDI can also improve an organization’s customer and
trading partner relationship management because of faster delivery of goods and services, as
well as

Enhance transaction security

• EDI enhances the security of transactions by securely sharing data across a wide variety of
communications protocols and security standards.

Paperless and environmentally friendly

• The migration from paper-based to electronic transactions reduces CO2 emissions, promoting
corporate social responsibility.
While many businesses are enjoying the advantages of EDI, some companies are still hesitant to try it
because of a few limitations.

Limitations of EDI

Perceived high upfront costs

• It is true that EDI used to require substantial upfront investment has been a barrier in the past,
especially for smaller businesses. However, like most technologies, EDI has become less
expensive over time. EDI systems have also become more mature with features that automate
and accelerate internal business processes that can quickly cover more than the investment
with time and money saved.

Initial setup is time consuming

• Not only has EDI become less expensive, it has also become faster to deploy and integrate into
existing applications and easier to use with WebEDI options that even non-technical users can
operate.

Too many standards

• Many organizations also consider EDI to have too many standards and versions. This could limit
smaller businesses in trading with larger organizations that use an updated version of a
document standard. Here are some of the standards: UN/EDIFACT, ANSI ASC X12, GS1 EDI,
TRADACOMS, and HL7. It is therefore imperative that a provider is chosen that supports a wide
range of standards and who commits to keeping up with new protocols in the future. All-in-one
solutions like OpenText Freeway Cloud eliminate the need to know all the standards by having
EDI standards built-in to the solution.

Investing in system protection

• EDI may also require a heavy investment in computer networks. It will need protection from
viruses, hacking, malware and other cyber security threats if an on-premises system is chosen.
However, many providers offer a cloud solution which includes system protection.

Robust data backups of systems

• EDI needs constant maintenance since the business depends on it. Robust data backups must
be in place in the event of a system crash. But again, if a cloud solution is chosen then this
responsibility lies mostly with the provider.

Despite being a decades-old technology, EDI continues to be the dominant protocol in the B2B world.
EDI hasn’t changed much over the years, but the systems that exchange EDI documents between
businesses have mostly moved to the cloud, become cheaper, easier to use, and more feature-rich.

When considering EDI for the first time, it is important to weigh the advantages and disadvantages.
But even more important is choosing the right provider that can help you get started and scale up as
your business grows, while always committing to providing the most up-to-date features and security
measures. If you would like to leverage EDI to streamline your operations, OpenText offers EDI
solutions that let you efficiently, reliably, and securely share data across a wide variety of EDI message
types and communications protocols.

Application of EDI
Order Integration

Creating, sending and follow-up of supply orders involves dedicating important technical and human
resources to processing the orders to suppliers at the right time and in the proper way.

Integrating Invoices

The integration of electronic invoices gives incredible upper hands to senders and collectors and
furthermore liable for better administration productivity proportions, and significant cost savings.
Dispatch Advice Integration

The despatch advice is a key business transaction to verify that the goods received correspond to the
purchase order specifications.

Electronic Payment system

E-commerce sites use electronic payment, where electronic payment refers to paperless monetary
transactions. Electronic payment has revolutionized the business processing by reducing the
paperwork, transaction costs, and labor cost. Being user friendly and less time-consuming than manual
processing, it helps business organization to expand its market reach/expansion. Listed below are
some of the modes of electronic payments −

• Credit Card

• Debit Card

• Smart Card

• E-Money

• Electronic Fund Transfer (EFT)

Credit Card

Payment using credit card is one of most common mode of electronic payment. Credit card is small
plastic card with a unique number attached with an account. It has also a magnetic strip embedded in
it which is used to read credit card via card readers. When a customer purchases a product via credit
card, credit card issuer bank pays on behalf of the customer and customer has a certain time period
after which he/she can pay the credit card bill. It is usually credit card monthly payment cycle.
Following are the actors in the credit card system.

• The card holder − Customer

• The merchant − seller of product who can accept credit card payments.

• The card issuer bank − card holder's bank

• The acquirer bank − the merchant's bank

• The card brand − for example , visa or Mastercard.

Credit Card Payment Proces

Step Description

Step 1 Bank issues and activates a credit card to the customer on his/her request.

Step 2 The customer presents the credit card information to the merchant site or to the
merchant from whom he/she wants to purchase a product/service.

Step 3 Merchant validates the customer's identity by asking for approval from the card
brand company.

Step 4 Card brand company authenticates the credit card and pays the transaction by
credit. Merchant keeps the sales slip.

Step 5 Merchant submits the sales slip to acquirer banks and gets the service charges
paid to him/her.

Step 6 Acquirer bank requests the card brand company to clear the credit amount and
gets the payment.

Step 6 Now the card brand company asks to clear the amount from the issuer bank and
the amount gets transferred to the card brand company.
Debit Card

Debit card, like credit card, is a small plastic card with a unique number mapped with the bank account
number. It is required to have a bank account before getting a debit card from the bank. The major
difference between a debit card and a credit card is that in case of payment through debit card, the
amount gets deducted from the card's bank account immediately and there should be sufficient
balance in the bank account for the transaction to get completed; whereas in case of a credit card
transaction, there is no such compulsion.

Debit cards free the customer to carry cash and cheques. Even merchants accept a debit card readily.
Having a restriction on the amount that can be withdrawn in a day using a debit card helps the
customer to keep a check on his/her spending.

Smart Card

Smart card is again similar to a credit card or a debit card in appearance, but it has a small
microprocessor chip embedded in it. It has the capacity to store a customer’s work-related and/or
personal information. Smart cards are also used to store money and the amount gets deducted after
every transaction.

Smart cards can only be accessed using a PIN that every customer is assigned with. Smart cards are
secure, as they store information in encrypted format and are less expensive/provides faster
processing. Mondex and Visa Cash cards are examples of smart cards.

E-Money

E-Money transactions refer to situation where payment is done over the network and the amount gets
transferred from one financial body to another financial body without any involvement of a middleman.
E-money transactions are faster, convenient, and saves a lot of time.

Online payments done via credit cards, debit cards, or smart cards are examples of emoney
transactions. Another popular example is e-cash. In case of e-cash, both customer and merchant have
to sign up with the bank or company issuing e-cash.

Electronic Fund Transfer

It is a very popular electronic payment method to transfer money from one bank account to another
bank account. Accounts can be in the same bank or different banks. Fund transfer can be done using
ATM (Automated Teller Machine) or using a computer.

Nowadays, internet-based EFT is getting popular. In this case, a customer uses the website provided
by the bank, logs in to the bank's website and registers another bank account. He/she then places a
request to transfer certain amount to that account. Customer's bank transfers the amount to other
account if it is in the same bank, otherwise the transfer request is forwarded to an ACH (Automated
Clearing House) to transfer the amount to other account and the amount is deducted from the
customer's account. Once the amount is transferred to other account, the customer is notified of the
fund transfer by the bank.