Magazine article Business Credit

EDIFACT: Bridging the International Communications Gap

Magazine article Business Credit

EDIFACT: Bridging the International Communications Gap

Article excerpt

In the late 1800s, who would have dreamed that a century later we could journey halfway around the world in one day? We had barely mastered travel from one part of the country to another! But the natural barriers of land and sea were soon overcome, making every corner of the world quickly accessible to anyone who could afford the voyage.

The barriers to international communication, however, still present a formidable obstacle. In fact, resolving communications quandaries may be one of the greatest imperatives in international competition as even middle-market U.S. businesses seek to expand through global trading. Financial electronic data interchange (EDI) offers the means to design a global standard that bridges the international communications gap.

In 1985, the United Nations designated EDIFACT (Electronic Data Interchange for Administration, Commerce, and Transport) as the international standard for EDI. Designed through a collaboration of participating countries, EDIFACT incorporates all of the advantages of existing EDI standards, making it the most comprehensive, streamlined, and efficient standard available in EDI technology.

As acceptance of the EDIFACT standard increases, the majority of U.S. corporations will eventually be touched by it in one form or another. To compete effectively in the international market, large corporations use EDI standards to exchange information electronically with other organizations. In turn, these corporations may offer incentives to smaller organizations, vendors, suppliers, and other trading partners to adopt their preferred EDI standard.

Beyond the Language Barricade

How does enhanced electronic communication affect the credit manager? If EDI (in ANSI X12 format) can provide the capabilities to manage existing accounts better than a paper-based process, then EDIFACT further enhances this process through more comprehensive and efficient EDI messages: payments arrive electronically linked to information detailing exactly what adjustments have been made to invoices being paid. Cash application and credit decisions automatically become smoother processes.

One of the fundamental functions in an organization's accounts receivable system is to provide accurate, up-to-date information about customer accounts so management can expedite credit decisions, generate more sales, ship more merchandise, and make more money. Stated another way, the bottom line is that accounts receivable systems facilitate business. And they can facilitate business better if they invest in the technology to streamline their processes and thereby provide comprehensive information more quickly and accurately.

EDIFACT's greatest strength is its ability to bridge communication with international trading partners. The superior capabilities and comprehensive design of EDIFACT messages allow them to accommodate more detailed and less redundant data than the ANSI X12 standard. The EDIFACT standard has the ability to describe transactions to the most minute detail and is extremely flexible--with the capability to describe similar transactions in a variety of ways.

For example, not only do EDIFACT payment messages convey the amount and what each payment is for, they can also explain payment adjustments or deductions more thoroughly than the X12 standard through a more comprehensive design, allowing the credit manager to immediately confirm account status.

Carrying more information than other standards, EDIFACT payments are identified and applied more quickly, significantly reducing idle time of funds and resulting in more profitable credit and cash management.

The structure of EDIFACT messages also eliminates redundant characters. ANSI X12 payment messages with adjustments must contain characters that serve no purpose but to identify location and keep them on track. The design of the EDIFACT messages, however, reduces the need for these characters, making EDIFACT messages more efficient. …

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