Understanding the EDI 820 for Efficient Payment Processing

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Clarity is key when you’re dealing with money. Fortunately, there’s a standardized format for communicating payment details with your business partners.

An EDI 820 is a vital document for facilitating electronic data interchange (EDI) payments in business-to-business (B2B) transactions. It's wise to familiarize yourself with this transaction type, the information it contains, and the benefits it provides to streamline your communications with vendor partners and accelerate transactions. 

In this guide, we’ll detail the primary components of an EDI 820 document and provide an EDI 820 example to illustrate how the document supports B2B transactions. 

What is the EDI 820?

An EDI 820 (aka Remittance Advice or Payment Order) is primarily used to confirm payment details with sellers, but buyers can also use the document to inform sellers of any adjustments to the amount they’re paying — often because previous payments were already submitted toward the same invoice. Typically, buyers will send payment alongside the EDI 820 via an electronic funds transfer.

The document is typically sent in response to the EDI 850 or the EDI 810, and its format follows the measures set forth by the American National Standards Institute (ANSI). An EDI 850 is a purchase order, typically sent to the vendor to initiate the ordering process. An EDI 810 is a type of an EDI invoice. 

Other transactions related to the EDI 820 include the EDI 846 and the EDI 855. The EDI 846 is an electronic inventory inquiry used by either party to obtain updates about current stock levels. Meanwhile, the EDI 855 is a purchase order acknowledgment — sent in response to a buyer’s purchase order request (an EDI 850).

7 primary components of the EDI 820

The essential elements of an EDI 820 document are as follows:

1. Invoice number or purchase order (RMR*IV or RMR*PO): The invoice or purchase order number allows both parties to track the invoice and document transaction history.
2. Payer and payee identification (N1*PR and N1*PE): Every EDI 820 should include basic identifying information about the payer and the payee, including their company names, addresses, ID numbers (if assigned), and a list of the payee’s accounts.
3. Billed and paid amounts (RMR): When transactions involve multiple payments, the EDI 820 should include information about billed and paid amounts so both parties can track the remaining unpaid balance.
4. Bank account number (BPR): The payer will provide a bank account number on the EDI 820 document, as well as the amount being paid and other relevant payment details.
5. Invoice adjustments (ADX): Invoice adjustments are edits to the amount owed and amount paid portions of the EDI 820. For instance, if a buyer owes $10,000 and is paying $6,000, they would adjust the amount owed to $4,000 and the amount paid to $6,000 when sending the EDI 820.
6. Tax information and date/time reference (DTM): DTM reference data is especially important when the involved parties are in different countries or time zones. Tax information is equally vital, as both parties require it for quarterly and annual reporting. 
7. Payment tracking information (TRN): Payment tracking information, such as a confirmation number for the payer’s financial institution, lets the seller confirm and track the payment. 

Benefits of EDI 820 payment orders

An EDI 820 document provides several benefits to buyers and sellers.

Seller benefits

From the seller's perspective, an EDI 820 is beneficial for the following reasons:

• Improved payment accuracy and efficiency: By digitizing payment remittance, an EDI 820 improves accuracy and ensures sellers are promptly compensated for the goods they provide. 
• Enhanced invoice management processes: An EDI 820 is easy to file, store, and organize, helping sellers effortlessly manage their invoices and keep client accounts up to date.
• Increased data security: The EDI framework provides a safe and secure channel for exchanging sensitive data, including buyer account information and payment tracking numbers. 
• Streamlined order processes: An EDI 820, as well as other EDI documents, makes receiving, fulfilling, and obtaining payments for orders far more efficient.

Buyer benefits

An EDI 820 also provides benefits to buyers, including the following:

• Standardized payment processes: An EDI 820 keeps everyone on the same page, simplifying payment processes. 
• Improved transparency: An EDI 820 ensures transparency during financial transactions, which can build trust between buyers and sellers.
• Better vendor relationships: Reducing errors and preventing misunderstandings with an EDI 820 and other standardized documents sets the stage for healthy, long-lasting vendor partnerships. 
• Security: Security is always a top concern when sending funds and account data. An EDI protects a buyer’s confidential financial data.