EDI Payments Explained: Use Cases And How They Compare to ACH and EFT
If you’re new to the world of finance, it might be easy to confuse the term “EDI payments” with money-moving rails like ACH payments and SWIFT transfers. EDI payments actually aren’t a standalone payment method at all. EDI, or electronic data interchange, is a data-sharing protocol that improves how financial transactions are tracked and managed. In short, EDI structures and transports the payment data, while ACH, wires, and other EFT rails move the money itself.
Understanding how EDI transactions work 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 Slash, a business banking platform that can provide 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.
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What’s an EDI Payment?
EDI refers to a standardized, electronic data format that businesses use to exchange financial data and business documents, including information related to payments. An EDI payment is simply a money transfer that uses that data format.
Using EDI formatting for an electronic payment can improve the tracking, processing, and reconciliation of that payment. 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. Overall, implementing EDI payments can result in faster and more secure transfers that are more compatible with certain systems.
How do businesses send EDI payments?
Where exactly EDI fits into the banking process can be a common point of confusion. The money itself still moves via traditional EFT payments, such as ACH transactions, wire transfers, or direct deposits, but the EDI protocol helps make that movement happen. Here’s 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 EDI remittance advice.
The 3 Types of EDI Payments
EDI payment data can be exchanged in several ways, often depending on a company's integrations and technical resources. Below are the three common ways EDI payments are transmitted:
Value-added network EDI
A value-added network (VAN) is a private network that facilitates the exchange of business documents and financial transactions. VANs act as intermediaries that can route EDI transactions between companies, validate secure data formats like ANSI X12, provide audit trails and delivery confirmations, and manage high-volumes of purchase orders and invoices.
Large enterprises can use VANs to integrate EDI more deeply into their internal systems. However, it’s worth noting that VANs can be expensive to implement and technically demanding to maintain. Make sure to evaluate the full EDI implementation cost before making any commitments.
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 doesn’t necessarily require a VAN, and may only work through 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 enables businesses to exchange EDI transactions using a browser-based platform instead of a completely 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’s the Difference 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’s 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 doesn’t 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 easy to confuse at first, 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. At around $0.20 to $1.50 per transaction, ACH transfers are lower-cost than other bank transfer methods, and can take 1-3 business days to settle.
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, and BECS in Australia. ACH is often 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 don’t rely on interbank messaging networks. Instead, these 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. The development of stablecoins like USDC and USDT, which are pegged 1:1 to the US dollar, has allowed businesses to begin using digital tokens in the same way they use standard currency. Slash supports sending and receiving stablecoins with built-in on/off ramps, enabling faster and lower-cost global transfers.⁴
Benefits of EDI Payments
When EDI formatting is attached to a payment, it allows payment data to sync directly with internal financial systems. To get the full benefits of EDI payments, you’ll typically need 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 the 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 can 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 costly 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’s 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. Similarly, if you maintain an ongoing relationship with a single supplier or buyer, a point-to-point EDI system between your two companies (Direct EDI) may provide many of the same benefits with lower complexity.
Alternatives to EDI payments
For smaller businesses, however, EDI payments aren’t 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 Online or NetSuite without the enterprise-level technical expertise needed to implement and maintain a VAN.
Optimize Your Business's Finances With Slash
Nowadays, you don’t need a complex, outdated VAN system to manage your company’s finances. Modern financial platforms like Slash can enable finance teams to send money from place to place through just about any rail that suits your needs.
Slash is a business banking platform that supports a wide range of payments, including card spend, global ACH, international wire transfers to over 180 countries via SWIFT, and real-time domestic payments through RTP and FedNow. Alongside these payment methods, teams get real-time visibility into their transactions on our all-in-one financial dashboard.
In addition to our payment-related features, Slash also offers:
- Global USD: The Slash Global USD Account is designed as an alternative for foreign founders who want access to USD without forming a US entity.³ Balances are backed by Slash’s USDSL stablecoin, which is designed to maintain a one-to-one value with the US dollar.
- Multi-entity support: Slash offers multi-entity account management tools without separate logins, allowing businesses to track spending, manage accounts, and download statements across all subsidiaries in one place.
- 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
- AI-powered finance: Our platform comes with Twin, a built-in AI agent that can be prompted with natural language to complete complex tasks. Users can ask it to create cards, pay invoices, review your cash flow, and much more.
- Accounting & ERP integrations: Sync transaction data with QuickBooks Online, Xero, NetSuite, or Sage Intacct to streamline reconciliation, reporting, and month-end close.
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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.
ACH Credit vs. ACH Debit: What's the Difference, and How Should Your Business Use Them?
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.
ACH vs Wire Transfer: Key Differences, Costs, Limits & Use Cases
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.
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