5 Ways to Become EDI Compliant & Avoid Chargebacks
Since the beginning of time, strong communication and relationship-building have been the backbone of any successful business. The digital frontier didn't change that landscape. In fact, it may have made it even more important, if not infinitely more complex. Electronic Data Interchange (EDI) is the embodiment of this shift.
Why is EDI Compliance Important?
EDI compliance requires both effective and accurate communication. The effects of which will lead to strong relationships. Failing to adhere to certain standards can have a negative impact on client relations, but that's just the tip of the iceberg. EDI chargebacks are financial penalties companies can institute when vendors and suppliers break EDI compliance in a Service Level Agreement (SLA). These chargebacks are not only costly but can strain relationships with trading partners. But, we’ll get to those later on.
What Does EDI Compliance Look Like?
EDI compliance refers to the format adherence required by a trading partner. Certain EDI documents must meet specific EDI compliance standards to ensure seamless exchange and avoid costly errors, not only in the form of penalties, but also delays. EDI standards also allow different companies with differing systems to communicate with one another effectively.
Think of it in terms of language. Each standard is a unique dialect, with unique documents and sets of transactions. There are more "standardized languages," or in this case, EDI standards. These include:
- The United Nations: EDIFACT
- The United Kingdom: TRADACOMS
- The American National Standard: (ANSI) X12
Compliance Requirements
Now, there's no one-size-fits-all for EDI compliance, as each supplier and trading partner may have their own requirements. However, you'll typically need to address the following:
- The EDI compliance requirements stated in the SLA
- Whether or not you have the support and trained specialists to maintain EDI compliance standards
- The resources needed to implement the required EDI documents, including code-specific invoice documents, code-specific inventory level documents, code-specific shipment notices, and so forth
So, EDI compliance means that your business is set up to receive, translate, and process business documents according to an agreed-upon standard. Let's look at it in practice:
Business A wants to send a Purchase Order (PO) to Business B. In their SLA, Business B identified their compliant standard as EDIFACT. This is not only to streamline communication but also because their systems are set up to process and understand this format and complete the appropriate response. If Business A fails to adhere to this EDI standard, penalties, delays, and costly consequences can occur.
The 5 Benefits of EDI Compliance
EDI compliance is a critical component in maintaining efficient and accurate transactions and communication. It's a common language that allows systems and businesses to speak with one another, exchange crucial data and remain compatible among different trading partners. Here are five of the most significant benefits of EDI compliance:
- Streamlined Efficiency and Enhanced Accuracy
- Cost Reduction Through Operational Efficiency
- Building Stronger Business Relationships
- Scaling Up Seamlessly
- Gaining a Competitive Edge
1. Streamlined Efficiency and Enhanced Accuracy
Regardless of the transaction, EDI helps improve the accuracy and efficiency of shipping notices, purchase orders, standard business documents, invoices, and other crucial EDI documents. EDI compliance means fewer manual entries, faster processing times, and less paperwork.
2. Cost Reduction Through Operational Efficiency
Obviously, reducing paperwork, expediting processing times, and cutting down on time-consuming manual entries will save money. For enterprise-level companies, this is a substantial amount. For this reason, they often institute financial penalties also known as "chargebacks" for any failure to comply with the EDI standards outlined in their SLA.
3. Build Stronger Relationships
Trading partners want reliability, especially when it comes to business communication and document exchange. EDI compliance helps build trust between partners, showcasing a commitment to standardized processes and tech that will build credibility and long-term relationships.
4. Scaling Up Seamlessly
As mentioned, enterprise-level companies already have these EDI standards in place, working with one another to ensure compliance and streamlined communication. Regardless of size, scaling means more partners and in turn, even more EDI compliance standards. EDI compliance empowers growth by preparing a business to handle different standards without incurring massive admin costs.
5. Gaining a Competitive Edge
Last but certainly not least is the culmination of all of these factors. Better processes and enhanced accuracy lead to lowered costs, and improved business relationships mean easier scalability, all of which give your company a competitive advantage.
What Are the Risks of EDI Non-Compliance?
Now, the primary risk of EDI non-compliance is EDI chargeback. These are financial penalties incurred for failing to comply with a trading partner’s EDI requirements outlined in the SLA. In short, they are a penalty for slowing down business operations, disrupting processes, and costing them money. As we’ve mentioned, the more a business scales, the bigger the web. The bigger the web, the more chargebacks occur. The more chargebacks that occur, the more management of these penalties is needed.
Let’s address the elephant in the room. One of the more nuanced and intangible risks of EDI non-compliance is trust. EDI success not only builds confidence in your organization’s ability to manage data interchange but also a partnership for business success.
It's easy to see how quickly things get out of hand.
How Do You Become EDI Compliant?
EDI compliance really comes down to expertise. So, if your organization houses EDI experts with a robust understanding of both domestic and global requirements, the bandwidth to keep up with changing standards and maintenance, along with knowledge regarding a wide range of configuration obligations – you’re good to go!
Chances are, you’re not in this boat.
In order to be EDI compliant, you’ll need a few things.
Get an Expert EDI Provider
We can’t really sugarcoat it. If you want to remain EDI compliant, it’s best to work with a team that focuses solely on ensuring EDI compliance. They’ll have the software, maintenance expertise, integration capabilities, EDI mapping know-how, translation solutions, and general EDI capabilities necessary for success.
Nearly every EDI relationship begins the same way. An EDI requirement document outlines the conditions of EDI compliance with a trading partner, and once fulfilled, a testing process will commence.
Be R.E.D.I. For Your Trading Partners
Testing typically follows a series of transactions that evaluate various transactions, confirmations, receipts, details, and system communications. To become EDI compliant, you'll need to be R.E.D.I.
Review the agreed-upon requirements
Evaluate whether or not you have the support of trained specialists
Deploy EDI solutions that can handle compliance requirements outlined by your trading partners
Implement the necessary EDI document codes
How to Prepare for Common EDI Compliance Challenges
As more and more organizations face business evolutions, EDI compliance has become increasingly complex. Let’s take a look at some of the most common EDI compliance hurdles and how your organization can prepare.
The Problem: Scalability
EDI is a standard protocol. However, each trading partner and even industry may have its own “standard.” As you gain more and more customers and trading partners, the EDI compliance web becomes more difficult to manage.
The Solution: Outsourcing
To effectively address the scalability challenges related to EDI compliance, many companies turn to outsourcing EDI services. EDI providers offer a robust solution by seamlessly integrating with Enterprise Resource Planning (ERP) systems.
They bring to the table a wealth of expertise in compliance and the ability to adapt to changing guidelines. These providers are equipped with the right tools and resources to navigate the intricacies of various industries and meet the specific requirements of trading partners.
Outsourcing your EDI not only ensures scalability but also enhances the overall efficiency of your business processes. By leveraging the services of EDI experts, you can focus on your core operations, leaving complex EDI compliance matters in capable hands.
The Problem: Unreliable Data
A recent study conducted by the University of Tennessee uncovered a significant issue affecting B2B transactions – unreliable data. It's alarming to note that approximately 60% of these transactions face disruptions or suspensions due to data-related anomalies. This issue is a critical obstacle that must be overcome to fully unlock the potential of EDI.
The Solution: Business Management Tools
Business rules within your EDI processing system can play a crucial role in monitoring and mitigating these issues. Reliable EDI provider tools may alert your team and trading partners to discrepancies before they reach your ERP system, effectively addressing the problem of unreliable data.
With advanced monitoring and exception management, you can ensure the accuracy and reliability of your EDI transactions, thereby optimizing your overall business processes.
The Problem: Visibility
Originally, EDI was a solution to streamline labor-intensive business processes. While that still holds true today, intricate supply chains have created a new challenge: transparency. Trading partners need access to every system that touches an order, and growing complexity threaten that transparency.
The Solution: EDI Migration
While many businesses attempt to patch every supply chain hole and EDI compliance leak, at some point, it might be time to invest in a new boat. While it’s a massive undertaking, migrating to a more integrated EDI platform that is positioned for scalability, data enablement, trading partner visibility, and evolving EDI compliance standards might be the right move. If you’re interested in learning more, check out our informative guide on EDI migration as a proactive approach to business agility and compliance.
5 Ways to Become EDI Compliant (from the Pros)
1. Grasp Your Business Requirements
To foster a robust business partnership, it is essential to comprehend and fulfill your partner's needs. Suppliers should be adept at recognizing their retailer's requirements to ensure the smooth and timely fulfillment of obligations.
2. Utilize Reliable EDI Software
Selecting EDI software that meets all the prerequisites for EDI compliance is crucial for any business. Embrace the ever-evolving landscape of compliance technology, such as cloud-based systems, algorithms, and analytics, to enhance your operational efficiency.
3. Deploy Comprehensive EDI Solutions
Implementing an end-to-end EDI solution that encompasses tasks like data mapping, translation, and network maintenance can significantly boost efficiency within your organization.
4. Conduct Thorough Self-Testing of EDI Systems
Identifying and rectifying issues within your EDI systems is pivotal for ensuring accurate data exchange between organizations. Catching and addressing problems during the testing phase allows you to resolve any issues before implementing EDI solutions in your operations.
5. Adhere to a Consistent Schedule
Certain businesses mandate that vendors demonstrate their ability to transmit essential documents within specified time frames, failing which they may be labeled non-compliant. Meeting these time requirements is paramount for achieving EDI compliance and fostering a strong business relationship.
From One Industry to the Next: EDI Compliance
While most industries follow the traditional EDI compliance standards such as EDIFACT, TRADACOMS, ANSI ASC X12, VDA, and so forth – there are some more niche compliance guidelines for certain industries.
Automotive
The automotive industry is one of the more unique EDI structures, as there are plenty of regional private networks in addition to more traditional EDI providers. These may include the American Network Exchange (ANX), European Network Exchange (ENX), and the Japanese Network Exchange (JNX). Remaining compliant may mean working with a provider that has experience navigating these more regional private networks.
FMCG
Fast-moving consumer goods, otherwise known as FMCG, include many goods such as fruits, vegetables, drinks, over-the-counter drugs, milk, and many other perishables. FMCG EDI compliance isn’t nearly as unique as some other industries, but there are some facets that are worth considering. Trading partners and stores dealing with perishable items need to have transparency regarding these goods throughout the supply chain to ensure safe use. Additionally, certain countries that are major players in the sale of agricultural goods, such as the Czech Republic, have specific legislative requirements regarding these orders (such as Act No. 395/2009 Coll.
Financial Services
Another industry with specific standards and niche EDI compliance considerations is the financial sector. The Society of Worldwide Interbank Financial Telecommunication, or SWIFT, develops and defines standards for the financial services industry that allow for proper communication between financial parties – with the most common two message standards being MT and MX.
EDI Compliance Review
As businesses expand and evolve, maintaining EDI compliance becomes increasingly complex, and the risks of non-compliance loom large. Trust and reliability in partnerships are at stake, along with the potential for costly chargebacks. EDI compliance offers several key benefits, including streamlined efficiency, cost reduction, stronger relationships, seamless scalability, and a competitive edge.
To achieve EDI compliance, organizations must ensure they have the necessary expertise, resources, and reliable EDI software. One of the best ways to manage this is to partner with experts. If you’re looking for tips, check out our guide on how to choose the right EDI provider. Common challenges such as scalability, unreliable data, and visibility can be addressed through outsourcing, business management tools, and EDI migration.
Don’t forget, different industries may have unique EDI compliance standards and considerations. Whether in automotive, fast-moving consumer goods, or financial services, understanding and adhering to specific industry standards is vital for success in the world of EDI. As businesses continue to embrace EDI compliance, they must adapt to changing guidelines and industry-specific requirements to thrive in the digital age of commerce.
