How does EDI work?
Continuing growth of electronic commerce and rising demands for the streamlining of trade processes make it both profitable and necessary for businesses to exchange trade documents electronically. Available technologies have gradually phased out manual operations, enabling seamless digital interaction across borders, systems, and electronic document formats.
EDI (Electronic Data Interchange) is the common way to exchange trade documents electronically between companies. This includes documents such as orders, order confirmations, dispatch advices, and invoices, as well as a number of other documents used in the business relationships between a buyer and a supplier.
Electronic commerce between two parties assumes that the related business documents in the process can be transferred between the buyer’s and the supplier’s system. The most common models for such exchange are:
2-corner model:In this model, the documents are exchanged directly between the parties without intermediaries. This presupposes that both parties have their own EDI specialists and system solutions for such exchange.
3-corner model:In this model, there is a central EDI service provider that connects the sender and receiver. Both parties have an agreement with the same service provider, and the service provider helps all sides connect to multiple buyers or suppliers. Historically, closed trade networks have been based on this model, where the associated parties can only reach other parties who are connected to the same service provider.
This model allows the buyer and supplier to have separate EDI service providers, where the service providers make interconnection agreements to ensure that buyer and supplier can communicate. The four corners in this model are then the buyer, the buyer’s service provider, the supplier’s service provider, and the supplier. Most service providers today are based on this model, and this is also the model used by Peppol.
When sending a commercial message (such as an invoice), the sender’s system often defines which technical format is best suited to convey the information from the sender. Similarly, the recipient’s system will prefer a technical format to receive and interpret the information in the message correctly. There are a number of standards for document formats (e.g. ANSI, EDIFACT, Peppol BIS, OUOUBL), and each format can come with many versions (e.g. ANSI 5010, EDIFACT D12A).
This means that the document must be translated/mapped from the sender’s format to the recipient’s format in order for the systems to communicate directly. In the case of a 2-corner model (direct setup between sender and receiver), the responsible party for such translation must be agreed upon between the parties. For the 3- and 4-corner models, the EDI service provider is responsible for the translation. By consolidating such translations to one (or more) key service provider, this work is streamlined – as service providers create their own libraries of technical translations from one format to another.
The role of the EDI service provider
As can be understood from the previous sections, the EDI service providers play a central part in facilitating an easier flow of trade messages between companies. From the traditional 2-corner model where each party was responsible for the technical integrations with all their trading partners, today’s 4-corner model has opened up for a single connection providing access to a world of suppliers and customers.
An EDI provider provides a robust and highly available infrastructure, as well as expertise on on-boarding of trading partners. With a wide range of services, the EDI service provider also ensures that you can focus on your core business, while they handle the integrations with your trading partners.
P2P – Purchase to Pay
Having an electronically supported purchasing process will not only save you time and costs, but also minimize placement of incorrect orders. With EDI, you can order goods from your suppliers based on electronic product catalogues and receive order confirmations directly in your purchasing system. With these steps, you confirm that you have ordered the right goods and that your supplier can deliver as planned. When the goods are shipped from the supplier, you can receive an electronic message (a dispatch advice) with detailed information about the shipment, enabling you to prepare for the goods receipt. The invoice will be received directly in your accounting system after the goods are sent from the supplier.
Logiq Loop: 100% electronic commerce
A common challenge with digitization of the purchasing process is that not all suppliers are ready for a fully integrated EDI solution in their order management systems. With Logiq Loop, a web-based EDI order portal, these suppliers can still receive the electronic orders from the customer’s purchasing system, return electronic order confirmations, and send dispatch advices and invoices electronically. This way, the suppliers can satisfy customers requiring EDI integrations even without having support for EDI in their existing systems. With an increasing number of customers demanding such electronic processes, Logiq Loop is a simple and cost-effective solution – built upon the EDI platform used by many of the major retail chains in the Nordics.
AP – Accounts Payable
An achievable goal for any business should be to receive all their invoices electronically. Invoice handling can quickly become complicated when some invoices are received by email, some by mail, and some directly into the accounting system. It has become relatively common to require all suppliers to deliver invoices electronically, and when you team up with an EDI service provider you can receive such invoices both through the Peppol network, via other EDI providers, and through interconnection networks such as NEA (Sweden), TIEKE (Finland), and NEMHANDEL (Denmark). An EDI service provider will also often offer an invoice portal for your suppliers to manually generate electronic invoices in case they do not have the system support for this.
However, until all you suppliers are able to deliver electronically, the EDI provider will also usually help you receive all types of invoices, including those that arrive on paper and email, and translate these into electronic formats that are accepted by your accounting system.
Document control: Automated control of received documents
Over the course of a year, countless invoices are received by a business. These invoices will often contain incorrect or incomplete information, and the manual process of handling such discrepancies is something that takes an unproportional large amount of time. This is why Logiq developed Document Control, a service that automatically does quality assurance on the information in both invoices and other documents before they are received by you. Documents that do not pass the tests are either a) automatically corrected based on advanced algorithms in the service, b) rejected and returned to the sender with information about your requirements, or c) stopped by the service and made available to the supplier in a portal where they can correct the information themselves.
When the documents are stopped by the service, a customized email is sent to the sender of the document, explaining why the document was stopped. The email contains a link to the portal, so that the sender can easily correct the information or add missing information.
O2C – Order to Cash
The Order to Cash process is the opposite of what was described in the Purchase to Pay process – in that you receive orders from your customers and process them for delivery. By using EDI in this process, you can receive such orders electronically directly into your order management system and respond to your customer through electronic order confirmations. This streamlines the process and gives both you and your customer better control. Furthermore, when the order is ready to be packed and shipped, you can create an electronic packing slip (dispatch advice) describing how the shipment has been packed - and send this to the customer before they receive the delivery. Finally, the invoice is sent electronically to the customer so that it quickly and efficiently s received by their accounting system and made ready for payment. The EDI service provider will help you ensure that these processes work seamlessly.
AR – Accounts receivable
When you send an invoice, the most important thing is that it reaches the recipient, whether this is a business or a consumer, and preferably in the way that the recipient wants to receive their invoices. Some businesses still prefer to receive invoices by email, and some consumers still prefer to receive invoices by paper. With the right EDI service provider you will ensure that recipients can receive invoices electronically, while still providing your customers who are not yet fully digital the opportunity to receive invoices by email or postal mail.
Logiq Multichannel B2B
Sending B2B invoices becomes easy with the help of Logiq Multichannel. You can send all invoices in one format to Logiq, and the Multichannel service distributes these to the recipient in the most efficient manner available. The solution can send both through EDI and interconnection networks such as NEA (Sweden), TIEKE (Finland) and NEMHANDEL (Denmark), via Peppol for recipients registered there, and by email and postal mail for recipients without digital options.
Logiq Multichannel B2C
Sending invoices to consumers often involves a combination of electronic- and paper invoices. With Logiq Multichannel B2C you reach your customers the way they prefer. The electronic channels will vary by country. In Norway, most consumers prefer either eFaktura or Avtalegiro – where they can receive the invoices directly into their online bank. In Sweden, channels such as Kivra and Billo, alongside with eFaktura, enables consumers to receive their invoices electronically. With Logiq Multichannel B2C, Logiq automatically evaluates the most efficient way to reach your customers in a way they prefer, both digitally and through more traditional channels such as email and paper invoices.
Is your business ready for a modern EDI solution?
There is no doubt that the future is digital, and that all businesses must advance into digital communication with their trading partners to stay competitive. With a full-scale EDI solution, all businesses will benefit from time- and cost savings, reduction of manual operations, fewer errors, and smoother and more efficient processes. For most businesses, EDI will also have a positive effect on the employees’ work processes and the overall working environment in the company.