Electronic Data Interchange (EDI) is a method oftransferring electronic data in a predefined format from one computerapplication to another over a communications link.

EDI is the electronic equivalent of processing paper documentsand is at the center of electronic commerce. Companies that use EDIreduce the number of errors and the processing time associated withthe paper document exchange. Companies can exchange documents directlyor they can use a third-party.

EDIdocument flow is faster and more efficient than paper document flow.The following table compares the two document flows side-by-side toillustrate the benefits of implementing EDI as a means of exchangingdocuments electronically:

Paper Flow
Time Frame: Days

EDI Flow
Time Frame:Minutes to Hours

Data entry personnel enter the document information into a computersystem.

Data entry personnel enter the document information into acomputer system.

The business application creates a document file and sends thefile to a printer.

The business application creates a document file.

A printer prints the document.

The EDI system converts the document file into an EDI documentfile and sends it to a value-added service provider (VASP).

Support personnel place the document into an envelope that isaddressed to a customer.

The VASP delivers the document to a customer VASP mailbox.

The envelope goes through the postal system and is delivered.

Customers electronically retrieve the EDI document files fromtheir VASP mailbox.

Customers receive the envelope open it and remove the document.

The customer's EDI system processes the EDI document fileand creates an application file.

The customers enter the document information into their computersystem.

The customer's business application adds the documentfile information to its database for processing.

The customer's business application processes the documentinformation.

The customer's business application processes the documentinformation.