EDI stands for Electronic Data Interchange and is used for businesses to exchange information using a direct system to system process of transferring data that would have otherwise been transferred through the use of faxes or mails which requires people to be involved.
EDI simplifies, speeds up and reduces the cost of the whole process as EDI cuts out the need for paper and people needed manually input and transfer data such as purchase orders or invoices.
An invoicing system without EDI might look like this:
Whereas an invoice system with EDI looks like this:
Transferring documents using EDI requires the data to be in a standard format so that each system can know what to expect when receiving data and can read, understand and reply using the same standard.
There are many different EDI standards such as ANSI, EDIFACT, TRADACOMS and ebXML all of which have different versions. So when two businesses decide to use EDI they must agree on a standard for the EDI system to work.