August 14th, 2021
When it comes to EDI transactions, EDI payments are often left in the dark when compared to purchase orders or invoices. However, EDI payments play an equally important role in the order cycle.
In this blog, we are going to take a closer look at the meaning and structure of an EDI payment in business-to-business transactions, as well as discuss how and why you should be using EDI payments.
What Is an EDI Payment?
Commonly known as EDI 820 Payment Order or Remittance Advice, an EDI payment is an electronic document that a buyer sends to the seller to confirm the intent to pay one or more invoices.
An EDI 820 document typically follows the x12 format defined by the American National Standards Institute (ANSI) and includes the following information:
- Invoice or purchase order number
- Payer and payee contact details (name, address, ID number, …)
- Payment amount (including invoice adjustments when applicable)
- Account and bank information
- Payment/remittance date
- Method of payment/funds movement
- Credit or debit confirmation
- Check or payment number
Pop quiz! What is the equivalent of an ANSI X12 EDI 820 in the European UN/EDIFACT standard? Scroll down to the bottom to find the answer.
How Do You Use an EDI Payment?
EDI payments are usually issued in response to an invoice (EDI 810) or purchase order (EDI 850). In most cases, the EDI 820 is automatically triggered by an EDI 810 or EDI 850.
- The buyer sends an EDI 850 Purchase Order
- The seller responds with an EDI 855 Purchase Order Acknowledgement, followed by an EDI 856 Advanced Ship Notice and EDI 810 Invoice.
- Upon receipt of the EDI 810, the buyer sends the EDI 820 Payment Order or Remittance Advice.
- Once the seller has received the EDI 820, an EDI 997 Functional Acknowledgement is sent back to the buyer to confirm the receipt, marking the end of the order cycle.
So, in general, EDI payments are used to confirm the payment details to the seller. However, an EDI 820 can also be used to advise the seller of invoice adjustments, or else to provide instructions to a bank or financial institution to make the payment.
Because EDI 820s include critical financial information like bank account numbers, most companies choose to use a Value-Added Network (VAN) to ensure that the EDI payments are securely transmitted from the buyer’s ERP or accounting system to the seller’s system. Another popular option is using an internet-based direct connection like AS2 or secure FTP so that messages are safely encrypted before being transmitted to the receiver.
What Are the Benefits of Using EDI Payments?
Unlike other EDI documents that typically involve only the buyer and the seller, EDI payments are more complex in nature, as there are more parties involved: the buyer, the seller, the buyer’s bank institution, and the seller’s bank institution.
Now, with so many players, the chances of incurring errors and delays would increase exponentially if payments were to be processed manually.
When using EDI payments, all parties involved can accelerate the payment process from days to minutes and eliminate costly data entry errors. They can also free up resources, reduce postage and processing costs, easily identify discrepancies during payments reconciliations, and, above all, keep payment information secure.
Pop quiz answer: The equivalent of ANSI X12 EDI 820 is UN/EDIFACT REMADV