What are EDI Payments? How Do They Compare to ACH & EFT?

EDI Payments Explained: Use Cases And How They Compare to ACH and EFT

EDI payments can be misunderstood. While the term may sound like a lesser-known, alternative transfer method, that is not the case. EDI, or electronic data interchange, is a data-sharing protocol that improves how financial transactions are tracked and managed. It is not a standalone payment method, but a standardized way to exchange payment data electronically.

Understanding how EDI transactions work, and how they integrate with existing payment methods, can help businesses streamline payment processing, improve accounts receivable visibility, and strengthen relationships with vendors and suppliers. It can also help determine whether EDI payments are the right fit for your business, as EDI systems can be expensive to implement and complex to maintain.

In this guide, we’ll explain everything you need to know about EDI payments, including what they are, how they work, how they fit into broader payment systems, and the benefits they offer. We’ll also discuss how Slash can serve as an alternative payment solution, providing comparable security and automation benefits without the implementation complexity of EDI.1 With Slash, businesses can send funds across multiple payment rails, share financial data across systems in real time using the Slash API, and manage accounts receivable through built-in invoice management and cash flow analytics tools. Continue reading to learn more.

What is an EDI payment?

EDI, or electronic data interchange, may often be discussed alongside other electronic funds transfer (EFT) methods. But, it is important to clarify that EDI itself is not a payment method. EDI refers to a standardized, electronic data format that businesses use to exchange financial data and business documents, including information related to payments.

When EDI formatting is applied to an electronic payment, it can enhance how that payment is tracked, processed, and reconciled. EDI allows electronic payment details to be read automatically by interconnected computer systems, which can reduce the need for manual data entry and speed up payment processing speeds between business partners.

An EDI payment includes structured data elements that describe the financial transaction. These elements are organized into segments, which are codes that can correspond to invoice numbers, remittance details, purchase order references, payer and payee information, and other information related to a payment. Those segments are wrapped in envelopes that ensure the EDI transactions are transmitted correctly between EDI systems.

Implementing EDI payments can result in faster and more secure transfers that are more compatible with ERP or VAN systems, which we will explain in more detail later.

How do businesses send EDI payments?

A common point of confusion is where EDI fits into the banking process. The money itself still moves via traditional EFT payments, such as ACH transactions, wire transfers, or direct deposits. Here is a quick breakdown of how EDI payments work alongside electronic funds transfers:

A buyer approves a payment for one or more invoices in their accounting or ERP system.
The payment is initiated through a bank account using an electronic transfer, such as an ACH payment, wire transfer, or other EFT payments.
At the same time, EDI software generates standardized EDI transaction files containing remittance details.
These EDI transactions are transmitted electronically to the supplier through an agreed-upon EDI system.
The supplier’s system automatically applies the payment to the correct invoices using the embedded remittance advice.

The 3 types of EDI payments

EDI payments data can be exchanged in several ways, depending on a company’s scale, integration requirements, and available technical resources. Below are the three common ways EDI payments are transmitted, listed in order from the most to the least complex:

Value-added network EDI

A value-added network (VAN) is a private network that facilitates secure electronic exchange of business documents and financial transactions. VANs act as intermediaries that can route EDI transactions between companies, validate secure data formats (e.g. ANSI X12, EDIFACT), provide audit trails and delivery confirmations, and manage high-volumes of purchase orders and invoices. Large enterprises may use VANs to integrate EDI more deeply into their internal systems; however, VANs can be costly to implement and technically demanding to maintain.

Direct EDI

Direct EDI, also called point-to-point EDI, establishes a direct connection between two companies’ internal systems using a shared data formatting protocol. Establishing a direct EDI connection between two companies does not necessarily require a VAN, and may only require a web interface or EDI software. Direct EDI works best for payers and suppliers with a consistent, ongoing business relationship. Common communication protocols used in point-to-point EDI transfers include AS2, SFTP, and FTPS.

Web EDI

Web EDI allows businesses to send and receive EDI transactions through a browser-based interface rather than a fully integrated system. Web EDI may be used by smaller suppliers that need to participate in EDI payments without investing in complex infrastructure. While easier to adopt, it usually lacks the automation, scalability, and integration capabilities of VAN-based EDI systems.

What are the differences between EDI payments and other types of electronic payments?

The most important distinction to keep in mind is that EDI itself is not a form of payment. Rather, it is used alongside certain payment methods to structure transaction data. The methods described below are the mechanisms through which funds actually move between bank accounts:

Electronic funds transfers (EFTs)

An EFT refers to any electronic payment that does not involve cash or paper checks. This includes ACH payments, direct deposit, debit and credit card transactions, ATM withdrawals, wire transfers, and more. EDI and EFT may be confused due to similar terminology, but they serve different functions.

Automated Clearing House (ACH) transfers

An ACH payment is a U.S.-based electronic transfer processed through the Automated Clearing House network. Usually, ACH transfers are lower-cost than other bank transfer methods, and can take between one day to a week to transfer depending on the destination. ACH is a U.S.-specific banking network, but there are equivalents in other countries such as SEPA in the European Union, BACS in the United Kingdom, or BECS in Australia. Global ACH, a transfer option offered by Slash, originates in the ACH system and settles on equivalent foreign networks. ACH can be used to send EDI-formatted payments.

Wire transfers

Wire transfers are bank-to-bank electronic transfers that typically settle faster than ACH but carry higher fees. International wire transfers often use the SWIFT network, which provides standardized messaging between financial institutions globally. Like ACH, wire transfers can be paired with EDI data. With Slash, you can send wires via the SWIFT network to 180+ countries in over 135+ different currencies.

Cryptocurrency transfers

Unlike the other payment methods in this section, cryptocurrency transfers do not rely on interbank messaging networks. Instead, cryptocurrency transactions are sent over the blockchain, a decentralized data-sharing network that uses cryptographic algorithms to securely record and transfer payments. Crypto is growing in popularity as a digital transfer method because it can bypass some of the fees, intermediaries, and processing delays associated with traditional bank rails. Slash supports holding, sending, and receiving USD-pegged stablecoins such as USDC and USDT, enabling faster and lower-cost transfers globally.4

Benefits of EDI payments

When EDI formatting is attached to a payment, it allows payment data to sync directly with internal financial systems. Realizing the full benefits of EDI payments typically requires a VAN or another integrated EDI system capable of processing and validating the standardized data formats. Below are some of the common advantages of using EDI payments alongside a VAN:

Enhanced security: EDI payments rely on secure transmission protocols such as AS2 and SFTP, reducing exposure of sensitive financial data.
Elimination of manual processes: Purchase orders, invoices, and payments can be generated and exchanged electronically without repetitive data entry.
Strengthened compliance through data-capture: EDI systems create clear audit trails by linking payments to invoices and purchase orders.
Interconnectivity between systems: Payments, invoices, and remittance data can be matched automatically across your front-end and back-end systems, including software for managing accounts receivable, accounting, payment processing, procurement, and more.

However, implementing and maintaining a VAN or other EDI infrastructure can be expensive and technically complex. Many of the greatest advantages of EDI payments, such as automation and integration across third-party systems, are difficult to achieve without VAN compatibility. For smaller businesses, these requirements can make EDI payments impractical compared to other EFT methods.

When EDI payments are the right choice for your business

If your business already utilizes a VAN, whether it is managed internally or outsourced, implementing EDI data alongside your payments can improve how payments are tracked, linked to invoices, and synced with interconnected financial management systems.

If your company manages a complex network of suppliers and has the resources to support VAN infrastructure, EDI payments can deliver meaningful improvements to automation, compliance, and operational efficiency. Or, if you maintain a close, ongoing relationship with a single supplier or buyer, a point-to-point EDI system between your two companies may provide many of the same benefits with lower complexity.

Alternatives to EDI payments

For smaller businesses, however, EDI payments are not always feasible. They require technical expertise and the supporting systems can be expensive to implement. Alternative financial management tools, like Slash, may offer comparable security and automation capabilities with far less overhead.

For one, cryptocurrency and stablecoins are highly secure payment methods that can often be implemented more easily than EDI. Slash enables the use of stablecoins for B2B transfers and syncs transfer details directly within the Slash dashboard. With Slash’s stablecoin support, businesses can gain better visibility into accounts receivable, benefit from faster processing timelines, and reduce costs compared to bank-based EDI payments.

Secondly, APIs are becoming a more common alternative to VANs. VANs first emerged in the 1970s, and much of the underlying infrastructure may be outdated when compared to modern API systems. The Slash API enables real-time data sharing across third-party tools and greater configurability within financial management workflows. Businesses can automate data sharing with accounting platforms like QuickBooks or ERP systems without the enterprise-level technical expertise needed to implement and maintain a VAN.

Optimize your business’s finances with Slash

Instead of implementing an overly-complicated, outdated VAN system, consider managing your company finances with a modern financial platform like Slash. Slash delivers all the benefits of EDI payments, plus additional capabilities like access to cryptocurrency transfers, unified financial management, and real-time data sharing through the Slash API. Here are some of the additional ways that Slash can offer more benefits over an EDI system:

Sync payments with broader systems: Slash enables businesses to send payments through multiple rails, including Global ACH, wires to more than 180 countries, real-time networks like RTP and FedNow, and stablecoin transfers. Payment details are stored centrally in the Slash dashboard, where users can review payment trends, easily identify cash flow patterns, and export data directly to accounting platforms like QuickBooks.
Multi-entity support: One advantage of VAN systems is centralized data management. Slash supports multi-entity account management from a single dashboard, allowing businesses to track spending, manage accounts, and download statements across all subsidiaries in one place.
Native cryptocurrency support: Stablecoins offer an alternative to traditional fiat currencies and can enable faster, lower-cost global transfers. Slash allows users to hold, send, and receive payments in USDC and USDT via eight supported blockchains.
Slash Visa Platinum Card: Slash’s corporate charge card provides granular employee spend controls, including configurable spending rules, team-based card groupings, and customizable limits. The Slash also earns up to 2% cash back on company spending.
Flexible financing: Slash Working Capital provides a tailored line of credit that businesses can draw on for short-term liquidity needs. Funds can be accessed directly through the Slash dashboard, with flexible repayment options of 30, 60, or 90 days.5

Ditch outdated systems and modernize your financial operations with Slash. Visit slash.com to learn more.

Frequently asked questions

What are examples of EDI?

Common EDI examples include electronic purchase orders, invoices, remittance advice, and payment notifications exchanged between business partners. These EDI transactions allow financial and operational data to be shared electronically in a standardized format.

Is EDI payment the same as direct deposit?

No, EDI is not the same as direct deposit. Direct deposit is a type of ACH payment that moves funds between bank accounts, while EDI provides standardized data that can accompany that payment.

Are EDI payments sent by banks?

Banks handle the movement of funds for EDI payments through EFT methods such as ACH or wire transfers. EDI systems operate alongside banks by transmitting the payment and remittance data electronically between the payer and payee.

What type of online portal do I need to execute an EDI payment?

Businesses typically use EDI software, a VAN, or a web-based EDI portal that integrates with their accounting and banking systems. The actual payment is still initiated through a bank or payment platform, with EDI handling the exchange of transaction data.