What is EDI?

Alexa Cook: 

Hey guys, welcome to the Treasury Update Podcast Coffee Break Sessions, the show where we cover foundational treasury topics and questions in about the same amount of time it takes you to drink your coffee. 

Alexa Cook: 

I’m Alexa Cook, consultant at Strategic Treasurer and today’s host. Today we will cover our new foundation building Coffee Break Sessions by discussing EDI and what it is. I’m joined today by Craig Jeffery, managing partner and founder of Strategic Treasurer. Welcome Craig. 

Craig Jeffery: 

Hey, good to be here Alexa. I love these coffee break podcasts. I am drinking caffeine but it’s not in the form of coffee. 

Alexa Cook: 

That’s okay. I guess let’s just jump right in and get started by taking a look at what exactly EDI is. So what is EDI? 

Craig Jeffery: 

EDI stands for electronic data interchange, and ANSI is the governing body that puts out the standards for it. So when we think about this in terms of treasury, it’s the exchange of business documents electronically. And so you’ll be familiar with some of the different numbers or terms that come up. So for payments, most people think about 820, as you look at lockbox, bank fees, et cetera, there’s some other items in the 800 series. Same thing with healthcare, 835 et cetera. So 820 is probably the most common payment origination document in this series. 

Alexa Cook: 

Okay, that makes sense. How long has EDI been around? 

Craig Jeffery: 

That’s a great question. It’s been around multiple decades and it has gone through some different iterations, but EDI has been around for quite some time. It’s death has been proclaimed for more than a decade and yet it continues to grow. 

Alexa Cook: 

Interesting. So you said it’s evolved a bit. Do you want to maybe elaborate on that or give an example? 

Craig Jeffery: 

Yeah, I think maybe the easiest way to say it is, so if you have a EDI series, you have an 820 and it’s related to payments. There’s also versions. So the development or evolution of this, so you might’ve had a 3010, a 3020, 3040, those all represent versions. If you go from a 820 that was a 3040 to an 820 that’s a 4010, that reflects an expansion of capabilities. The large numbers, the thousands represent a major step. And the other ones are updates that oftentimes happen every year. They‘re in the fourth major iteration of it with different updates. So it allows for more capabilities, handles more instances of payment types, for example, or other business documents. 

Alexa Cook: 

Okay. What are some of the benefits of EDI or why are we using it? 

Craig Jeffery: 

Yeah, and maybe another question on that too is, is that the right form to use as you go forward? So why it continues to grow is that when you set it up, it works great in exchanging business documents. I invoice someone, I do a request for a proposal, I get an invoice, I get a bill, I generate a payment, I can use these messages back and forth. And it’s an effective way to communicate with others. Once it’s set up, all of that integration and translation flows to the backend system that you’re using. And so it works well. So it’s harder to yank something out if something’s already working well and set up. So you see certain industries, automotive for example, where it’s expanded rapidly and continues to grow, it’s easy to do business. Does it always make sense going forward? Not always. It’s not the most modern style. It’s not an XML version where everything is tagged, it has a process related to it. It began when it was more expensive to send data. It’s not as limited as just a delimited file format like you would be familiar with, with the BAI2 or an MT940. It has segments and sections and can repeat. So there’s some aspects there that are still useful. It’s just not the most modern, but still it continues to grow. 

Alexa Cook: 

Okay, good to know. So it really sounds like once an industry’s committed to this format, it’s hard to pull away from that 

Craig Jeffery: 

Because there’s so many projects people are working on, it’s harder to stop something and say let’s convert those. They’re usually working on the next thing that’s making a bigger difference. But one thing of interest, I think when you think about EDI, if you look at ACH, the US house national automated clearing house association, their standard entry classes allow for addenda records. And for example, if you’re going to send a CTX, which is a corporate trade exchange payment, you’re sending a payment from business to business. To include what you’re paying for goes into those addenda records. In that addenda record, there’s a segment of the 820 of the payment record called the BPR that includes invoice number, date, amount, any discount so that someone can take that out of the banking system and say, oh this is what’s being paid for. I can not only assign it to the vendor or my customer that is paying me, but now I can apply to the individual invoices because I have the detailed records. I don’t have to call them, I don’t have to re-associate that with an email if I get that data. So it uses and leverages this format from, that’s been around for a while. 

Alexa Cook: 

Okay. Almost making it like a one stop shop. 

Craig Jeffery: 

Yeah. Yeah. Or a common methodology of sharing that. And since it’s been around a while, they use what was very modern at the time, which was the EDI segment. 

Alexa Cook: 

Okay. So a couple of minutes ago I heard you say things could be translated or they’re not in XML. So does that mean EDI has its own translations or special ways to be transmitted, or do you maybe want to elaborate on that? 

Craig Jeffery: 

Sure. So EDI can be transmitted any way you want to communicate. You can communicate it directly host to host or over your own private network. You can send it over a value added network. This was a lot more popular a long time ago. And you can send these over any network that can send a message. So there’s not a restriction there in terms of translation. Your underlying system isn’t in an ANSI standard, it’s not in an EDI format. So you’re always translating it from one of these standards back to your underlying system, whether it’s SAP, Oracle, PeopleSoft, whatever. You have to have some kind of translation. So you’re either buying a translation package or you’re using a treasury aggregator or you’re using someone who just does EDI, you buy your own translator to convert the language of the business document in that format to your underlying system. 

Alexa Cook: 

Okay, so I think we’re almost out of time here. So let me take a quick recap and then see if you wanted to add anything to it. So EDI is the exchange of business docs and some of the key points are that it has been around forever, but it is still heavily relied upon on in many industries and it is getting the job done, and it can be transmitted in a bunch of different ways. Host to host, private connection, et cetera. Did I get it all, at least at the high level? 

Craig Jeffery: 

I think you got it right. I don’t know that I would say it was around forever. It’s been around for 30 years or so. But it’s been around for a long time. People that have been in the industry for a long time will recognize this has been very historical. It hasn’t been around as long as BAI2 for example. 

Alexa Cook: 

Okay. Well, thank you Craig, and make sure everyone tunes in every first and third Thursday of the month for a new episode of the Coffee Break Session podcast. 

Craig Jeffery: 

Thanks, Alexa. 

OUTRO: 

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