EDI: A chameleon, not a dinosaur

Financial transactions are an integral part of the physical supply chain. While the method of communication between businesses has evolved rapidly with technological changes, the content of these financial messages has changed very little in comparison. However, what has changed drastically is the volume of transactions processed by a modern accounts department.

EDI continues to adapt

In the mid-90’s, the demise of EDI files was widely predicted. It’s not difficult to understand why. After all, commercial applications of EDI had been around since the 60’s. Internet access suddenly became very easy, reliable and affordable. This easy access was going to replace expensive and cumbersome EDI with newer technologies. EDI adapted and survived. Then in the early 2000’s EDI files seemed to be doomed again with the rise of XML and the introduction of XBRL. However EDI adapted once more. Lesson learnt: the need to reliably transfer structured financial information in high volumes between businesses isn’t going away.

ROI of EDI

As with any IT expenditure, one of the major concerns around EDI files tends to be Return On Investment (ROI). Other than the usual “How much?”, another very important question is “What if?”.

What if customers, vendors or banks move to new standards? What if some change but others don’t? Even worse, what if the changes are an interim compromise towards full-scale adoption sometime in the future? These are legitimate concerns and must pass the ROI “test”, even if sometimes the decision is led by changes within a large client or by a corporate move to a different bank.

Why use an established EDI automation software provider?

One of the major advantages of using an established vendor to automate EDI processing is the benefit of their previous experience. In the case of Cashbook, this means having access to an extensive customer remittance library. Are names like Amazon, Home Depot, Ace Hardware, Costco, Lowes, Walmart, Kmart, Sears, Target, Honda, GM or Cessna part of your client base? We’ve already connected to them through EDI.

It’s not always straightforward. Other than the usual 812, 820 and 823 EDI document types, there are also CSV, XLS and XML combinations to contend with. Everyday, we also process more complex interactions where documents are embedded in other documents, such as an 823 Lockbox with ACH CTX embedded. We’re auto matching cheques without CTX information using the accompanying XLS and XML data. Your international subsidiaries might be using a combination of traditional and newer formats such as camt.052 and camt.053, especially if they’re tasked to be a regional shared services centre for international operations.

Overcoming obstacles with deductions

Deductions can be a major hurdle to the automation benefits of EDI files as they involve multiple sets of custom reason codes. Especially true with large retailers, codes unique to each customer need to be matched to internal deduction codes. Cashbook’s deductions management software auto-codes the deductions in EDI files to automate the deductions process. True EDI is about reliable automation in a high transaction volume environment. At Cashbook that’s exactly what we’ve been doing for well over 2 decades. With the deduction codes in our library and our matching algorithms, automating deductions is a seamless task.

The future of EDI

Financial transactions are an integral component of the supply chain and the future of EDI as an enabler of high volumes of transactions is assured if history is a guide. While traditional EDI formats such as ANSI X12 will continue to dominate the landscape, ISO 20022 is one of the directions of the future of financial messages.

This next generation of financial messaging standards is gaining in popularity and will increasingly be part of the future plans of existing EDI users. Expect document formats for Cash Management (CAMT) and Payments Initiation (PAIN) to be mentioned with greater frequency in the coming years.

Ready to automate EDI processing & deductions?

Cashbook helped the finance team at MTD Products, a leading global outdoor power equipment manufacturer, to automate 80% of deductions and unlocked trapped capital. Cashbook’s deduction management software enables auto-assignment of deduction reason codes, resulting in a much easier, faster deductions management process. Request a demo to see how your organisation can unlock trapped capital, move people to higher value work by automating deductions processing.