The EDI 820 transaction set serves as the standard for the Payment Order/Remittance Advice document, facilitating commerce without manual intervention. This standardized approach allows companies to communicate complex transactional information automatically. The 820 is foundational for achieving high levels of automation in processing financial transfers and accurately recording them within accounting systems. Understanding the function of the 820 is the first step toward modernizing financial communication between trading partners.
Defining the EDI 820 Transaction Set
The EDI 820 is defined under the American National Standards Institute Accredited Standards Committee X12 (ANSI ASC X12) standards. This format is the universally accepted method for transmitting payment and remittance information electronically. The transaction set is initiated by the paying party (payer) to formally notify the receiving party (payee) about the specifics of a financial transfer.
This electronic document acts as a notification of a pending or completed payment, detailing exactly what is being paid. The 820 is not the payment itself but the detailed explanation that accompanies the funds. Standardizing the format enables seamless, system-to-system communication regarding financial obligations.
The Essential Role of Remittance Advice
The primary function of the EDI 820 is to enable automated cash application and reconciliation within the payee’s accounting software. When funds are transferred electronically, such as through an Automated Clearing House (ACH) or Electronic Funds Transfer (EFT), the payment often arrives as a single lump sum. Without the remittance advice, the receiving company must manually determine which outstanding invoices that payment covers.
The 820 solves this challenge by providing a detailed breakdown, allowing the payee’s Enterprise Resource Planning (ERP) system to automatically match the payment to the exact obligations it fulfills. This process identifies specific invoice numbers, applied discounts, and any deductions or adjustments taken by the payer. Linking the payment to the underlying commercial transaction data ensures the accurate closure of accounts.
Key Information Contained in the EDI 820
Payment Identification Details
The document establishes the unique identity of the transaction. This includes a unique payment reference number, which serves as the primary identifier used to track the transaction across both the payer’s and payee’s systems. The total amount of the financial transfer is clearly specified, providing the receiving system with the exact dollar value expected. These identifiers ensure the corresponding electronic fund transfer is accurately associated with the remittance details.
Invoice and Adjustment References
The core of the 820 is the specific line-item detail required for reconciliation. This section explicitly lists the invoice numbers being paid, along with the corresponding line item amounts. The 820 also includes codes that explain any differences between the original invoice amount and the payment amount. These codes identify reasons for deductions, such as a prompt payment discount, a sales return, or a chargeback for damaged goods. These detailed references eliminate the need for manual investigation into payment discrepancies.
Banking and Transaction Information
The EDI 820 includes necessary banking information relevant to the transfer to complete the financial communication. This often involves the bank routing number and account number used by the payer to originate the transaction. While the 820 is not the transfer instruction, these details confirm the source of the funds and are sometimes used for verification. This data helps establish an auditable trail for the transfer, connecting the commercial details to the financial movement.
How the 820 Fits into the Accounts Receivable Cycle
The EDI 820 occupies a specific place in the sequence of B2B electronic document exchanges. The process begins with the supplier sending an EDI 810 Invoice to the buyer, requesting payment. Upon approving the invoice, the payer generates the 820 transaction set, which is often transmitted simultaneously with the initiation of the electronic funds transfer.
The payee receives the 820 and the funds, using the remittance advice to immediately update their accounts receivable system. This exchange allows for straight-through processing, meaning the cash is applied to the appropriate open balances almost instantaneously upon receipt. This workflow ensures that the commercial communication precedes or accompanies the financial transfer, maximizing automation.
Business Benefits of Using the EDI 820
Moving from paper-based remittance stubs to the EDI 820 improves financial operations. The primary benefit is the acceleration of the cash application process, which reduces the time funds spend in an unapplied status. Automated processing reduces the chance of manual data entry errors, leading to higher accuracy in reconciling customer accounts.
Companies reduce labor costs associated with manually matching payments to invoices and researching discrepancies. This efficiency allows finance teams to dedicate more time to strategic analysis rather than transactional processing. The 820 streamlines the flow of money and information, improving financial health and forecasting reliability.
Steps to Implement EDI 820
Implementing the EDI 820 requires a structured approach to ensure seamless integration with trading partners. The process involves several key steps:
- Securing an EDI translation solution (software or third-party service) capable of converting internal accounting data into the 820 format.
- Defining clear mapping requirements, specifying how data fields in the internal ERP system correspond to the segments and elements within the 820 standard.
- Conducting rigorous testing with each trading partner.
- Exchanging sample files to confirm that the data is transmitted, received, and processed correctly by both systems.