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EDIFACT: bridging the international communications gap.

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.

Even though EDIFACT messages are more streamlined than ANSI X12 messages, the functions of the transactions are virtually the same. EDIFACT's ability to move greater amounts of more detailed information enhances the benefits of EDI by providing more cost-effective accounts receivable and cash management, greater accuracy attributable to less manual handling, and faster, more complete information exchange.

The Evolution of EDIFACT

Bringing the systems and experiences of many cultures to the table, the EDIFACT board includes EDI professionals and programmers from five regional subcommittees: Asia/Pacific, Australia/New Zealand, Western Europe, Eastern Europe, and Pan-America, working together to develop the EDIFACT syntax. (American interests are represented by the Pan-American board, which includes delegates from each ANSI X12 subcommittee.)

The development of EDIFACT messages occurs in three stages before final approval by a subcommittee of the United Nations:

Status 0: Development Status 1: Trial Usage Status 2: Final Approved Message

When presumably stable messages reach Status 1, they are ready for programming and international trial usage. These messages remain "in the field" for 18 months and often undergo minor revisions before they may be recommended for Status 2.

Six EDIFACT messages have currently reached Status 2: payment orders, extended payment orders, credit advices, extended credit advices, debit advices, and remittance advices.

In 1992, messages for letters of credit were promoted to Status 1. Not available through ANSI X12 systems, the EDIFACT messages for letters of credit may eventually replace the proprietary systems of individual banks sending letters of credit messages in diverse formats. In addition, through the EDIFACT letter of credit message, companies are able to send the same message to multiple banks. Other Status 1 messages include direct debit, multiple payment, and bank status (application acknowledgment).

At a recent joint EDIFACT board meeting in Oslo, Norway, a resolution was approved to move to four comprehensive messages that would replace the currently diverse range of 30 to 40 financial transaction messages previously planned. A message for each payment, information, documentary credit, and service would be able to handle all transactional information, increasing the efficiencies of the EDIFACT standard dramatically and further streamlining communications between trading partners.

Gauging EDIFACT Usage

Unfortunately, EDIFACT does not yet enjoy the global acceptance it was meant to achieve. Use of EDIFACT in the United States is still less than 5 percent.

Many EDI users and programmers hesitate to accept the reliability and capabilities of the EDIFACT standard because of the newness of many of its messages. ANSI is currently reviewing comments on ballots from a vote of whether to move X12 standard development into the EDIFACT syntax by 1997.

While the European Economic Community (EEC) and many international business groups now regularly trade through the EDIFACT standard, U.S. corporations continue to use ANSI X12 standards for nearly 60 percent of EDI transactions. Through ANSI, U.S. corporations have the capabilities to reach most businesses involved in domestic trading. Therefore, until EDIFACT grows significantly in the United States, many companies simply won't make the conversions necessary to establish trading relationships with the smaller circle of EDIFACT trading partners.

Most EDI users support, at least philosophically, having one universal standard. But significant investments in current software make many organizations reluctant to alter their existing systems. Also, the extensive development of the X12 message syntax through 1992, coupled with a general lack of familiarity with EDIFACT's updated syntax and software availability, creates an aversion to adapting the new EDIFACT standard.

Costs also deter companies from adopting a dual X12 and EDIFACT standard. Individual organizations must weigh the quantity of international activity they conduct with the costs associated with either outsourcing the conversion of EDI information or purchasing software to internally translate EDI information from ANSI X12 to the EDIFACT syntax. Companies that incorporate EDIFACT into their internal systems must also factor in the fixed overhead costs of employing a systems staff that can learn the EDIFACT syntax, program EDIFACT, and maintain EDIFACT systems.

Although the relationship between incompatible EDI trading partners often dictates where the translation responsibility lies, businesses in the international arena generally expect the X12 party to translate its information to the EDIFACT standard when there are trading discrepancies.

The degree to which EDIFACT impacts the day-to-day transactions of U.S. corporations still varies, but the efficiencies and comprehensive nature of the EDIFACT standard offers benefits to all EDI users.

Although much of the world doubted the practicality of international travel, the "trend" quickly became the norm once technology was developed to bridge the gaps. Likewise, as technology bridges the communication gap, the accessibility of EDIFACT and the electronic transfer of information will stimulate the competitiveness of companies of all sizes in the international arena.

Fred Wayland is vice president of the Continental Consulting Group, Continental Bank, Chicago, Ill. and U.S. representative to the EDIFACT board.

ANSI and EDIFACT Transaction Sets Payment Messages

EDIFACT PAYORD, version 91.2 UNH+1+PAYEXT:2:912:UN' BGM+451+0101+137:920515:101+9' NAD+OY+COMPANY A' FII+BF+12345678+COMPANY B+BANKXX:25:5' DTM+203+920515:101' MOA+7+9:59400:USD' UNS+S' DOC+380+101' MOA+7+9:10000+52:100+12:9900 DOC+380+102' MOA+7+9:20000+52:200+12:19800 DOC+380+103' MOA+7+9:30000+52:300+12:29700 MOA+3+128:59400:USD' UNT+15+0101' ANSI X12 820, version 003.020 ST*820*0101BPR*C*59400*C*SWT********02*BANKXX*DA*12345678\ TRN*1*0101DTM*007*920515\ ENT**0101\ N1*PR*COMPANY A\ N1*PE*COMPANY BRMR*IV*101*PO*9900*10000*100\ RMR*IV*102*PO*19800*20000*200RMR*IV*103*PO*29700*30000*300\ SE*11*0101

The EDIFACT and ANSI X12 messages above illustrate the structure of a sample payment message in each standard. These messages show that Company A is paying Company B's bank account 12345678 U.S. $59,400 for three invoices in the amounts of $10,000, $20,000, and $30,000. Each invoice receives a 1 percent discount.

The ANSI X12 format uses fewer characters than EDIFACT, but EDIFACT exhibits increased efficiencies in two areas. In the ANSI X12 version, the BPR segment contains the payment amount as well as address information; therefore,***characters must be inserted as overhead to keep the correct place. EDIFACT lists this information separately in FII and MOA, reducing overhead.

Also in the ANSI X12 version, the RMR segment assumes that the third amount is the discount amount. The EDIFACT syntax allows the use of a qualifier, though, so any type of adjustment to the payment may be carried in the MOA. If this example required an adjustment to the invoice, the ANSI X12 version would need an ADJ loop, adding significantly to the character count of the ANSI X12 message.
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Title Annotation:Electronic Data Interchange for Administration, Commerce, and Transport
Author:Wayland, Fred
Publication:Business Credit
Date:Jan 1, 1993
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