What is EDI? A Plain-English Introduction

EDI stands for Electronic Data Interchange. It is the standardized electronic format that businesses use to exchange common documents — purchase orders, invoices, shipping notices, payments — directly between their computer systems, without paper, email, or someone re-typing the data by hand.

If a retailer wants to order 10,000 units from a supplier, it does not send a PDF that a human reads and re-keys. It sends an EDI document that the supplier's system reads automatically. That is the whole point: machines talking to machines in a format both sides agreed on in advance.

Why businesses use EDI

• Speed. An order that took days by mail or fax is transmitted in seconds.
• Accuracy. No manual re-keying means far fewer errors. A single mistyped quantity can be expensive.
• Cost. Less paper, less labor, fewer disputes.
• Scale. A large retailer trading with thousands of suppliers cannot do it by hand. EDI makes high volume possible.

For these reasons, big buyers like major retailers, automakers, and healthcare payers often require their partners to use EDI as a condition of doing business.

What an EDI document actually looks like

A raw EDI file is dense and machine-oriented. Here is a tiny fragment of an X12 purchase order:

ST*850*0001~
BEG*00*SA*PO-99831**20240115~
PO1*1*100*EA*12.50**UP*012345678905~

It looks cryptic, but the structure is simple once you know the pattern:

• The file is made of segments, each starting with a 2–3 letter tag (ST, BEG, PO1) and ending with a terminator (here ~).
• Within a segment, individual values are elements, separated here by *.
• So PO1*1*100*EA*12.50 means: line 1, quantity 100, unit of measure EA (each), price 12.50.

The two big standards

There is no single worldwide EDI format. Two dominate:

• ANSI X12 — used mainly in North America. Documents are numbered (850 = purchase order, 810 = invoice, 856 = ship notice).
• UN/EDIFACT — the international standard used across Europe and most of the world. Documents have names (ORDERS, INVOIC, DESADV).

They carry the same business meaning in different syntax. We compare them in detail in X12 vs EDIFACT.

How EDI documents travel

The document itself is separate from how it is sent. Historically EDI moved over private value-added networks (VANs); today it also travels over AS2, SFTP, and APIs. As a reader of EDI, you mostly care about the document content, not the transport.

Frequently asked questions