What Is EDI? A Beginner’s Guide to Electronic Data Interchange

What Is EDI? 7-Minute Simple Beginner’s Guide to Electronic Data Interchange

What is EDI? EDI (Electronic Data Interchange) is a standardized way for businesses to exchange documents like purchase orders, shipping notices, and invoices electronically without manual retyping. Instead of emailing PDFs and spreadsheets back and forth, EDI sends the same order data system-to-system in a consistent format so transactions move faster, with fewer errors.

If you have ever asked, “Why did this invoice not match the PO?” or “Where did the ASN go?”, you are in the right place. This beginner guide explains EDI in plain English, the most common EDI documents, and what modern EDI looks like for growing businesses.

What is EDI and why do businesses use it?

EDI is used to exchange structured business data between trading partners (buyers, suppliers, distributors, 3PLs, marketplaces). It removes repetitive admin work and reduces avoidable mistakes.

Less manual entry: fewer hours spent copy-pasting line items
Fewer errors: fewer typos, mismatched totals, and missing fields
Faster processing: orders and invoices move in minutes, not days
Better compliance: meet partner rules for ASNs, labels, and timelines
Clear audit trail: acknowledgements show what was received and accepted

EDI in simple terms

Think of EDI as a shared “business language” between systems:

A buyer creates an order in their system.
EDI sends that order to your system in a standard format.
Your system (or team) fulfills the order.
EDI sends updates back automatically (confirmation, ship notice, invoice).

So instead of humans reading emails and retyping line items, EDI transfers the data directly from one system to another.

How does EDI work?

Most EDI workflows follow the same pattern:

Document creation: a buyer generates an EDI document (example: purchase order).
Translation and mapping: the document is mapped to your system fields (ERP, accounting, WMS, OMS).
Transmission: the document is sent securely (AS2, SFTP, VAN, or modern API-based connections).
Validation: rules check required fields, totals, partner requirements, and document structure.
Acknowledgement: confirmations are sent back (997/999) to show receipt and validation status.

Helpful next reads:

Common EDI documents you will hear about

Different industries use different document sets, but these are the most common in retail, distribution, and supply chain:

EDI 850 (Purchase Order): buyer places an order
EDI 855 (PO Acknowledgement): seller confirms order details
EDI 856 (ASN / Advance Ship Notice): shipment and carton details
EDI 810 (Invoice): billing and payment details
EDI 997 / 999 (Acknowledgements): receipt and validation confirmation

When EDI is running well, you see fewer exceptions like:

Missing ship dates or invalid carrier codes
Invoice totals that do not match the PO
Late ASNs that trigger chargebacks
Rejected documents due to partner-specific rules

What is a trading partner in EDI?

A trading partner is any company you exchange EDI documents with, such as a retailer, distributor, 3PL, or marketplace. Each trading partner can have their own rules, versions, and timelines.

Document version requirements (which X12/EDIFACT version to use)
Label and packaging rules (GS1-128 / UCC-128, carton content rules)
Timing requirements (how fast you must send acknowledgements and ASNs)
Validation rules (required segments, allowed values, unique partner rules)

Learn more: What Is a Trading Partner in EDI?

EDI vs manual order processing

Many SMEs start with “email and spreadsheets”:

Emailing PDF purchase orders
Copy-pasting line items into QuickBooks, Sage, or an ERP
Chasing confirmations and fixing mismatches manually
Uploading invoices or ASNs through partner portals

This works until volume increases. Then the same process becomes expensive because every new order creates more manual rework and more risk.

If you want the numbers behind it: The Real Cost of Manual Order Processing (And How EDI Solves It)

Modern EDI for small businesses

Legacy EDI is known for long onboarding, hidden fees, and slow change cycles. Modern EDI focuses on automation, visibility, and fast onboarding so SMEs can operate like larger teams without the overhead.

A modern EDI platform should help you:

Onboard trading partners quickly with less back-and-forth
Automate the PO-to-invoice workflow
Validate documents before they fail and trigger penalties
Generate ASNs, invoices, and labels consistently
Integrate with tools SMEs actually use (like QuickBooks and Sage)

Where ActionEDI fits for EDI automation

If you want EDI without the overhead, ActionEDI helps you modernize quickly with a cloud-based platform designed for growing teams.

Fast implementation so you can go live in days, not months
Automation-first workflows for PO, ASN, invoice, and labels
Prebuilt integrations for common SME systems
Real 24/7 human support when deadlines are close

Explore:

Beginner FAQ about EDI

Is EDI still relevant today?

Yes. EDI is still widely used in supply chain and retail because it standardizes business documents across companies. The big shift is that modern cloud EDI makes it much easier for SMEs to implement and maintain.

Do I need an IT team to use EDI?

Not always. Many modern EDI platforms handle mapping, validation, alerts, and monitoring with dashboards and prebuilt integrations so non-technical teams can operate it day to day.

What is the best way to get started with EDI?

Start by listing your trading partners and their requirements, then choose an EDI platform that can onboard quickly and automate the full workflow (PO to ASN to invoice). If you sell to CDW, start here: CDW EDI Integration

Final takeaway

What is EDI? EDI is the standardized way businesses exchange critical documents automatically so orders move faster and errors drop. When implemented well, EDI becomes one of the simplest ways to scale operations without scaling headcount.

Want help making EDI simple? Learn more at ActionEDI or contact us via Contact.

For simplifying EDI and cutting costs by 50%, follow ActionEDI.

What Is EDI? 7-Minute Simple Beginner’s Guide to Electronic Data Interchange