edifactoring:what,why and for whom?

EDIFactoring: What, why, and for whom?

IKIGAIis a Japanese word, which means “reason for being”. Through this article, we are trying to arrive at the IKIGAI for Edifactoring messages and the ongoing innovations in the field proposed and worked upon by FCI in the

Supply Chain Finance industry. Is the ongoing interest and excitement over edifactoring a rational,

business-focused development or is just like a complex kryptonite?


EDI stands for Electronic Data Interchange, using which companies can exchange information in electronic

format rather than on paper. The same concept has been applied in factoring as well wherein factors can

communicate with each other as well as perform or initiate some interdependent tasks, thereby simplifying the

factoring process. FCI is a non-profit global representative body set up in 1968 for factoring and financing of

open account domestic and international trade receivables. In 2002, FCI launched the edifactoring.com platform and has been continuously innovating and enhancing it over the years. At the 2020 Annual Meeting

held virtually, FCI members witnessed increasing interest in the edifactoring model. FCI was also recognized

as the Best Trade Finance Global Innovator for 2020 by cfi.co.

What Factoring Means!

Factoring is a globally accepted financial transaction wherein the sellers of goods or services sell their outstanding

receivables (outstanding invoices) at a discount to a financial institution known as a “Factor”. Sellers generally

assign the receivables to the factors and may or may not notify the same to buyers. Factors at the seller side are

termed as export factors (EFs) and the factors at buyer side are known as import factors (IFs).


The differentiating aspect of factoring is that the ownership of the receivables lies with the EFs who are

responsible for collecting the debt from the buyer and can also provide protection to the sellers against the

buyer’s insolvency. Hence, the EFs first need to protect their exposure, which requires them to take up

due diligence to validate the credit worthiness and reliability of the buyers. Such due diligence can be

performed easily for domestic factoring where buyer and seller are from the same country but can become

extremely complex for international factoring. 


Edifactoring: The next step in the factoring process

Edifactoring helps resolve this complexity by leveraging a two-way communication channel. The EFs can

directly connect with IFs through various message types developed and deployed in the edifactoring channel

and can establish a contractual or correspondent relationship to serve the buyer and seller respectively,

paving the way for a digital “two-factor system”. This communication channel reduces the complexity of

cross-border transactions and also reduces the risk of fraud and disputes resulting from the assigned receivables.

For IFs, it serves as a method to reduce buyer risk. 


IKIGAI for Edifactoring

Coming back to IKIGAI, or the reason for being, of the edifactoring portal – it serves to support the two-factor

business model of FCI members through a set of electronic document interchange (EDI) messages Some of

them include invoice & credit notes (MSG 9), adjustment/cancellation of invoice & credit notes (MSG 10),

payment (MSG 11), invoice verification request (MSG 70), invoice verification response (MSG 74) etc.

There are around 40 messages that have been developed and deployed so far on the edifactoring.com platform

to facilitate factoring.


Invoice verification can be accomplished in the edifactoring platform using digital messages. The EFs can

validate the receivables presented before them by the sellers. Customers who can either play the role of an EF or

IF should facilitate the invoice verification process through the following steps with the aid of edifactoring

messages. 

  • MSG21 Free Text Message can be utilized for a bilateral agreement between EF and IF

  • EF will inform the IF about the verification requirement through MSG01 Seller’s Information

  • Additionally, EF can trigger MSG02 Preliminary Credit Assessment Request along with MSG05

  • Request for Credit Cover allowing the IF to contact the buyer directly

  • EF will assign the receivables or invoices to IF through MSG09 Invoices & Credit Notes

  • EF can send MSG70 Invoice Verification Request to IF and will equip IF with the buyer’s contact

  • details

  • IF will notify the EF with the verification outcome through MSG74 Invoice Verification Response

  • If any dispute arises, then MSG14 Dispute can be triggered along with MSG74 Invoice

  • Verification Response


Invoice Verification Request & Response through Edifactoring



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