How EDI is Used in the Finance Industry

EDI in Finance Industry

Introduction to EDI in Finance

In this new era of digitalization, the growth of international trade has created opportunities for trade between buyers and suppliers across the globe, resulting in the globalization of the financial supply chain. It involves many different processes to exchange information such as differences in currencies, accounting regulations, and other financial transactions/documents. Using EDI in the financial process mitigates this risk by automating the data exchange process in a standardized format, enabling the seamless, accurate, and timely exchange of financial data between buyers, sellers, and their financial institutions.

The most common EDI standard used in North America is EDI ANSI X12 transactions. There also other popular EDI standards are also used across the world such as UN/EDIFACT, SWIFT, and more

EDI in the finance industry helps businesses, financial institutes, and governments with the seamless transmission of financial information on a massive scale by automating the entire transaction cycle and reducing the dependency on the manual labor-intensive process.

How EDI is used by Finance Industry

These are the few steps taken by a company or institution to exchange payments or payment-related information.

Step 1 – The buyer electronically extracts payment information from the organization’s account payable system

Step 2 – The data is formatted into an EDI standard. Then, the transaction set is transmitted to the organization’s bank

Step 3 – The bank formats that information into the format necessary for its transmission through the Automated Clearing House (ACH) network as an ACH transaction.

Step 4 – The ACH network delivers the payment and its associated data to the seller’s bank, with the bank crediting the seller.

Step 5- It automatically transmits the payment information to the seller’s account receivable system, where the seller can see the funds have been posted.

How EDI helps Streamline the Processes in Financial Industry

The financial industry such as banks and private financial institutions offers various financial services to both individuals and businesses some of those services include personal loans, mortgages, day-to-day banking services, credit cards, insurance, and many more. All these different services involve the processing of complex information in a standardized format such as the processing of payable and receivables, supporting post-trade security flows, transmitting settlement files, or enabling group benefits eligibility claims.

For many years these processes were completed using manual methods which often delayed the overall operations. However, with the adoption of EDI technology, all these processes were standardized and automated making it possible to exchange information in minutes and increasing overall operational efficiency, reducing transaction costs, and accuracy, and increasing customer satisfaction.

Benefits of EDI in the Financial Industry

Payment automation – Automate payments to suppliers/vendors, payroll processing, accounts payable/ receivable, and more

Highly secure & reduce errors – Securely exchange financial information between banks, suppliers, and trading partners. Reduce errors caused by manual data entry

Improve cash flow – EDI helps you collect your payments faster and more efficiently thus improving overall cash flow

Reduce data processing cost – EDI reduces the turnaround time to process the data by processing them electronically in a standardized format and exchanging information in minutes thus reducing the costs of manual data processing

Common EDI X12 Transactions Used in Finance Industry

 

EDI X12 transactions are used for student information and student loans processing

 

EDI X12 Transaction Number

EDI Transaction Name / Document Type

EDI 130

Student Educational Record (Transcript)

EDI 131

Student Educational Record (Transcript) Acknowledgment

EDI 135

Student Loan Application

EDI 139

Student Loan Guarantee Result

EDI 144

Student Loan Transfer and Status Verification

EDI 146

Request for Student Educational Record (Transcript)

EDI 147

Response to Request for Student Educational Record (Transcript)

EDI 188

Educational Course Inventory

EDI 189

Application for Admission to Educational Institutions

EDI 190

Student Enrollment Verification

EDI 191

Student Loan Pre-Claims and Claims

EDI 194

Grant or Assistance Application

 

EDI X12 transactions used by Financial Institutions

 

EDI X12 Transaction Number

 EDI Transaction Name / Document Type

EDI 248

Account Assignment/Inquiry and Service/Status

EDI 810

Invoice

EDI 811

Consolidated Service Invoice/Statement

EDI 812

Credit/Debit Adjustment

EDI 818

Commission Sales Report

EDI 819

Operating Expense Statement

EDI 820

Payment Order/Remittance Advice

EDI 821

Financial Information Reporting

EDI 822

Account Analysis

EDI 823

Lockbox

EDI 824

Application Advice

EDI 827

Financial Return Notice

EDI 828

Debit Authorization

EDI 829

Payment Cancellation Request

EDI 831

Application Control Totals

EDI 859

Freight Invoice

EDI 980

Functional Group Totals

 

 

EDI X12 transactions used during mortgage processing

 

EDI X12 Transaction Number

 EDI Transaction Name / Document Type

EDI 197

Real Estate Title Evidence

EDI 198

Loan Verification Information

EDI 199

Real Estate Settlement Information

EDI 200

Mortgage Credit Report

EDI 201

Residential Loan Application

EDI 202

Secondary Mortgage Market Loan Delivery

EDI 203

Secondary Mortgage Market Investor Report

EDI 205

Mortgage Note

EDI 206

Real Estate Inspection

EDI 260

Application for Mortgage Insurance Benefits

EDI 261

Real Estate Information Request

EDI 262

Real Estate Information Report

EDI 263

Residential Mortgage Insurance Application Response

EDI 264

Mortgage Loan Default Status

EDI 265

Real Estate Title Insurance Services Order

EDI 266

Mortgage or Property Record Change Notification

EDI 833

Mortgage Credit Report Order

EDI 872

Residential Mortgage Insurance Application

 

EDI X12 transactions used by insurance companies and healthcare providers

 

EDI X12 Transaction Number

 EDI Transaction Name / Document Type

EDI 100

Insurance Plan Description

EDI 112

Property Damage Report

EDI 148

Report of Injury, Illness or Incident

EDI 186

Insurance Underwriting Requirements Reporting

EDI 252

Insurance Producer Administration

EDI 255

Underwriting Information Services

EDI 267

Individual Life, Annuity and Disability Application

EDI 268

Annuity Activity

EDI 270

Eligibility, Coverage or Benefit Inquiry

EDI 271

Eligibility, Coverage or Benefit Information

EDI 272

Property and Casualty Loss Notification

EDI 273

Insurance/Annuity Application Status

EDI 274

Health Care Provider Information

EDI 275

Patient Information

EDI 276

Health Care Claim Status Request

EDI 277

Health Care Claim Status Notification

EDI 278

Health Care Services Insurance/Benefit Review Information

EDI 288

Health Care Services Insurance/Benefit Review Information

EDI 362

Cargo Insurance Advice of Shipment

EDI 500

Medical Event Reporting

EDI 820

Premium Payments

EDI 834

Benefit Enrollment and Maintenance

EDI 835

Health Care Claim Payment/Advice

EDI 837

Health Care Claim

EDI 924

Loss or Damage Claim - Motor Vehicle

EDI 925

Claim Tracer

EDI 926

Claim Status Report and Tracer Reply

EDI 928

Automotive Inspection Detail

 

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