What is an EDI 820?

EDI is short for electronic data interchange. The EDI 820 documents follow the X12 standard that is set by the American National Standards Institute (ANSI). It’s a non-profit organization that regulates all EDI formats within the United States. 

The Electronic Data Interchange For Administration, Commerce, and Transport (EDIFACT) is the international EDI standard. This is adopted by organizations wishing to trade in a global context.

The X12 820 transaction set provides the specific format for transmitting information related to payments. The EDI 820 payment order is used in conjunction with the transfer of funds for payment of goods, services, or other transactions. 

The payment order/remittance advice is normally sent in response to an invoice or purchase order and is used to confirm payment details. It can also be used to advise the seller of any adjustments to the payment amount. 

An electronic funds transfer is sent with EDI documents that include payment/order information like:

• Invoice number or purchase order

• Payer/Payee identification:
— Company name
— Address
— Payee ID number
— Payee’s accounts

• Billed/paid amounts

• Bank account 

• Invoice adjustments

• Tax information

• Payment tracking information

The data contents of an EDI 820 will always contain unique identifiers to streamline the transaction and facilitate proper cash application.  

EDI 820 documents act as a statement of intent to pay. After the buyer sends the remittance advice transaction set (RMR) to the accounts receivable department, the matching begins. There should be a counterpart EDI 810 invoice or purchase order to settle the open account.

In general, EDI integration happens with a funds transfer to confirm payment details to the seller. However, an EDI 820 document is also used to advise the seller of important adjustments to the invoice that could change the payment amount. 

Additionally, an EDI 820 is sent to provide instructions for payment to the associated financial institution. It may also entail information on previous payments for the same invoice. 

While an EDI 820 is triggered by the receipt of an EDI 810 invoice, buyers can choose to send the document when they receive an invoice in any format. The seller’s bank may also issue an EDI 820 to the seller upon receipt of payment.

After the EDI 820 is received by the seller, their EDI solution will generate an EDI 997 Functional Acknowledgement. This document is sent back to the buyer to confirm receipt. This officially marks the end of the order process.

Whenever a business does anything electronically, it equates to less manual labor and more efficient operations. An EDI 820 frees up resources and reduces human error.  

When translated, the EDI 820 containing the same information as a regular, paper remittance advice. However, the data encryption used for the EDI keeps the buyer, seller, and payment information much safer. It supersedes traditional methods like mail, fax, or PDF.

By automating the B2B payment process, both buyers and sellers can streamline order management. Buyers save on a paper trail. For sellers, automation enables a business to oversee accounting through exceptions. 

This means, accounting only needs to address open accounts when they are alerted to an issue, rather than watching everything, all of the time. They don’t need to re-enter data or issue functional acknowledgments manually for each individual order.