Weigh the Benefits of Financial EDI against The Less Obvious Costs

Of the more than 12,000 banks in the United States, no more than 100 are EDI capable. However, new options for electronic data interchange (EDI) are behind the latest developments in corporate treasury management. New technologies that facilitate financial EDI include programs for EDI via email, electronic/lock box merge and electronic invoicing. The clear benefits must be thoroughly weighed against less obvious costs prior to making the decision to implement EDI.

•Reduction in document processing costs -- With financial EDI, the payment and remittance processes are brought together and finalized electronically rather than someone entering the data manually. Not only does this eliminate paper-based, labor-intensive transactions, but it frees up personnel and eliminates postage, phone, fax and courier.

•Improved Speed of Communication -- Via EDI, details of transactions can be sent, received, evaluated and processed in a fraction of the time usually associated with business processes. This dramatically reduces the purchasing and payment cycle.

•Reinforced Competitive Position -- EDI allows companies to reduce the cost of transactions and differentiate themselves from the competition by improving their business processes. For instance, allowing a trading partner to initiate an automated clearing house (ACH) debit is an easy way to differentiate oneself from the competition.

•Improved Invoicing -- By reducing communication time through EDI, invoices can be sent sooner and the invoice/payment cycle can be shortened helping save money on interest and loans.

Among the costs of electronic data interchange are the following:

• Limits to Capabilities -- Just being EDI compliant doesn’t give a company the ability to implement it throughout the business process. Such companies may fail to reduce the amount of paper-based work and, if anything, actually increase work for themselves or their trading partner.

• Increased Risk of Duplicate Payments -- Vendors that claim they’re EDI capable who do not have appropriate controls may send some invoices electronically as well as on paper thus significantly increasing the number of duplicate payments.

• Personnel and Training Costs -- Implementing EDI requires support and training. At least one full-time EDI Coordinator is necessary to maintain the EDI system and train management and users.

• Costs of System -- Existing business application software must be changed and new software must be purchased to support EDI. Costs for large corporations can exceed $10 million. New connections and monthly telephone and VAN charges of adding a new trading partner can be $20,000.

To find out more about how to select your EDI trading partners and appropriate controls and procedures, contact RECAP.