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3–10 Receive Billings through Electronic Data Interchange
software application that can create a separate and unique letter for each recipi-
ent. The other problem is that new suppliers (i.e., those arriving after the bulk
mailing) must be given a supplier code at the time they are first set up on the sys-
tem. This may require a special phone call to the supplier’s accounts payable
department to ensure that the code is added to their address file, or else a periodic
mailing to all new suppliers that specifies their supplier codes.
Cost: Installation time:

3–10 RECEIVE BILLINGS THROUGH ELECTRONIC
DATA INTERCHANGE

Many of the larger companies, especially those in the retailing industry, have been
using electronic data interchange (EDI) for some time. This section describes what
EDI is, how it works, why more companies should use it, and why so many do not.
EDI involves the transfer of electronic documents between companies.
These documents are sent in strictly defined formats, of which there are over a
hundred, one for each type of standard company transaction, including a supplier
billing. These formats tend to be very large and complex because they are
designed for use by multiple industries; most companies only need to fill out a
small portion of each EDI message. Once completed, an EDI message is trans-
mitted to the recipient. This can be done directly, but it usually goes to a third-
party provider that maintains a mainframe computer that receives messages from
a number of subscribing companies. The message recipient dials into its elec-
tronic mailbox at the third-party’s mainframe (usually several times a day) to
pick up any EDI messages. The recipient then enters each EDI message into its
own system for further processing. The reader may notice that a company could
achieve the same rapid transfer of information by sending a fax with the same
information. This is true, but if properly installed, EDI allows for a greater degree
of automation by linking directly into a company’s computer system. For exam-
ple, a paper-based fax must be rekeyed into the recipient’s computer system,
whereas an EDI message is in a standardized electronic format and so can be run
through an automatic conversion program that enters the data into the recipient’s
computer system with no manual data-entry work at all. This feature gives EDI a
distinct advantage over a fax transmission.
Larger companies use EDI most frequently because it allows them to automat-
ically process large quantities of transactions with no manual data-entry work,
which can be important when there are hundreds of thousands of transactions flow-
ing through the system. When data is entered by hand, there is a potential for errors
in the keypunching, which probably means that there will be hundreds or thousands
of man-made errors to correct in these larger companies, just given the volumes of
data that must be entered. Thus, EDI allows them not only to avoid the expense of
data entry, but also the expense of tracking down and fixing data-entry errors.