With the current COVID-19 crisis, people are avoiding paper money and going digital. The fear of virus transmission is still haunting the minds of people. In a world where everything is getting digital, it is important to work in a secure environment. Financial companies conduct thousands of transactions every day using online portals.
This calls for a secured platform for transactions, and right now Financial EDI is proving to be effective. The process is not just quick and hassle-free but highly secured.
What is Financial EDI?
Most of the companies, recently are using the online mode of payments like PayPal and Net Banking. The basic concept of financial EDI is to conduct the transaction of payments between two trading companies. Some countries also use Financial EDI as their driver for tax payments. This shows that EDI in finance is effective and safe.
Types of Financial EDI system:
There are three types of financial EDI systems. They are;
- Bank Checks: Checks are paper documents used in banks. Here the funds are deducted from payers account and credited into payee’s account. These checks may be reversed if there is no sufficient funds in the payers account.
- Interbank Electronic Funds Transfer (EFT): Electronic Funds Transfer (EFT) are basically credit transfers of funds between banks. Here the flow of funds is directly done from payer’s account to payee’s account. These transfers are usually quick and are done in a single day itself. Electronic Funds Transfer (EFT) are one of the best and earliest examples of those payment systems which rely upon online transactions.
- Automated Clearing House (ACH) Transfers: ACH Transfers are used when there is high volume, yet small-dollar transactions. These transactions are usually completed in one or two days. These transactions usually serve for the direct deposit of payrolls. Repetitive bill payments and consumer-initiated payments are also done with this system.
How is the working structure of EDI in finance?
There are several steps that companies follow to complete the payments through the financial EDI system.
Firstly, the buyer extracts the payment-related information from the payable account of the organisation electronically. Here the data is completely formatted according to the EDI financial standards. Secondly, the organization’s bank receives the transaction set.
The bank then goes through the data and formats all the information which is necessary for transaction with the help of Automated Clearing House (ACH) network as ACH transaction. Then, ACH network transacts the payment into the seller’s bank account. Then it alerts the seller so that he can see that funds are posted with all the required information.
Examples in Real-Life transactions which explains the streamline process of Financial EDI.
Below are some of the common examples of Financial EDI transactions:
- EDI 139 – Student Loan Guarantee Result: Some of the loan guarantee institutions use EDI 139 to provide the information to the lender or school about the status of any loan guarantee application.
- EDI 144 – Student Loan Transfer and Status Verification: Loan guarantors and lenders use this transaction set to receive or send the information regarding student loan ownership transferring.
- EDI 154 – Secured Interest Filing: If there is the filing of Uniform Commercial Code (UCC) or any other statement of secured interest then EDI 154 is the code you will be using. This is a very common transaction as UCC applies all over the US.
- EDI 812 – Financial Information Reporting: This code is used to get the reports of balances, summary and detailed information regarding financial transactions.
- EDI 823 – Lockbox: This code is the electronic version of the paper lockbox. This is used to know the incoming payment information
- EDI 827 – Financial Return Notice: this code is used to notify the originator that the EDI 820 transaction can’t go through.
- EDI 828 – Debit Authorization: this code is used to provide information to all the financial agencies about their authorized debits with the help of EFT and ACH.
- EDI 829 – Payment Cancellation: this is used by the payer for cancelling all the previous methods of electronic payment from any financial institution.
Why will EDI Financial become more popular than the present situation?
There are some of the important and trending factors which will eventually help the Financial EDI to become more effective and popular. They are;
Requirements of healthcare payments:
Some of the hospitals have made it mandatory to use the Financial EDI as their payment drivers. And also there are specific transaction codes designed for this sector such as EDI 835 which is used for submitting all kinds of payments.
Increased B2B transactions and payments:
The Internet is helping the businesses to grow around the world. One important factor for these multinational companies are currency trades. As most countries have their own currency. Here is when you can use the Financial EDI systems to make payments easily.
Governmental Tax payment:
Taxes are one of the important factors in citizens’ lives. All the countries are more dependent on the taxpayers’ money. Governments need an efficient and fast way to collect the tax from citizens and Edi finance is the best option available right now.
Over the past couple of years, financial companies have faced many challenges like data breaches and slow payment. But their major concern was increasing cyber-attacks. Due to these challenges, many financial companies experienced reduced work efficiency. This decreased their productivity level and a drop in their profit. But with EDI, companies are now able to overcome these challenges and work effectively. EDI is helping them in providing the best customer service. If you are looking for the best EDI Consulting Company then, you have to contact our Consultant Team.