EDI 820 is a key transaction set for automating B2B payment processing between trading partners. Using it, buyers can communicate payment details, remittance information, and invoice adjustments to sellers electronically. EDI 820 replaces paper-based payment orders and remittance advice with a secure, structured digital format.
Understanding EDI 820 is the first step toward automating your accounts payable and accounts receivable processes.
What is EDI 820? Payment Order/Remittance Advice Explained
EDI 820, also known as a Payment Order/Remittance Advice, is an electronic data interchange (EDI) transaction set used to transfer payment information between trading partners. The purpose of the EDI 820 document is to confirm payment details, communicate remittance information, and advise the seller of any adjustments to the payment amount.
The EDI 820 is typically sent by a buyer in response to an EDI 810 Invoice or EDI 850 Purchase Order. It is commonly accompanied by an electronic funds transfer (EFT), allowing payment data and the actual transfer of funds to occur together. The 820 transaction set is a dual-purpose document — it can serve as an order to a financial institution to make a payment to a payee, and it can also act as remittance advice that identifies the detail needed to perform cash application to the payee’s accounts receivable system.
How the 820 Transaction Set Works
The EDI 820 workflow typically involves up to four parties: the payer, the payer’s bank, the payee, and the payee’s bank. The process begins when the buyer creates a payment order/remittance advice in their business system. This data is then formatted into the ANSI X12 820 transaction set and transmitted to the seller — or, in some cases, delivered to a financial institution that initiates the funds transfer on the buyer’s behalf.
Once the seller receives the EDI 820, their EDI solution matches the payment information against the corresponding EDI 810 Invoice or purchase order to settle the open account. The seller’s system then generates an EDI 997 Functional Acknowledgement, which is sent back to the buyer to confirm receipt of the 820 document. This exchange marks the end of the payment cycle for that transaction.
An EDI 820 can be triggered automatically by the receipt of an EDI 810 or EDI 850, but buyers can also send an EDI 820 in response to an invoice received in any format. In some cases, the seller’s bank may also issue an EDI 820 to the seller upon receipt of the funds transfer.
ANSI X12 Format and EDI Standards
EDI 820 documents follow the X12 format established by the American National Standards Institute (ANSI) and the Accredited Standards Committee (ASC X12). This standard defines how electronic business documents are structured and exchanged across industries in North America. Outside North America, the UN/EDIFACT standard serves a similar purpose, with both systems sharing comparable structure and functionality.
The actual funds transfer associated with an EDI 820 is often coordinated through the Automated Clearinghouse (ACH) system — the 820 may effectively be wrapped in an ACH banking transaction. It is important to note that while the EDI 820 and EFT are closely related, they are not the same thing. The EDI 820 communicates payment and remittance data, while the EFT refers to the actual electronic transfer of funds between bank accounts.
EDI 820 Segment Structure
BPR, TRN, N1, RMR, and REF Segments Explained
EDI 820 documents are transmitted in a structured X12 format designed for machine-to-machine processing. The raw EDI data is translated by EDI software into a human-readable format that can be imported into an ERP or accounting system. Key segments include:
- BPR (Beginning Segment for Payment Order/Remittance Advice) — contains the payment amount, payment method (such as ACH, check, or wire transfer), and bank account details for both the payer and payee. This is the starting point of the transaction set.
- TRN (Trace) — provides a unique trace number for payment tracking and reconciliation purposes.
- N1 (Name) — identifies the parties involved in the transaction, including the payer (PR) and the payee (PE), along with their associated identification numbers and addresses.
- RMR (Remittance Advice Accounts Receivable Open Item Reference) — links the payment to specific invoices, providing the invoice number, the amount being paid for each invoice, and any adjustments or deductions. This segment is central to the cash application process.
- REF (Reference Identification) — contains additional reference numbers for tracking, such as purchase order numbers, check numbers, or remittance IDs.
- DTM (Date/Time Reference) — specifies relevant dates, such as the payment date, invoice date, or due date.
- CUR (Currency) — identifies the currency used for the payment.
- SE (Transaction Set Trailer) — ends the individual transaction set.
- GE (Functional Group Trailer) — closes the functional group.
- IEA (Interchange Control Trailer) — concludes the EDI interchange.
How is EDI 820 Used?
The EDI 820 is used during the payment management phase of the order cycle. It serves different purposes depending on who sends it and the business context.
1. When Sent by the Buyer (Payment Order)
The most common use of the EDI 820 is as a payment order sent from the buyer to the seller. In this scenario, the buyer creates the EDI 820 to confirm that a payment has been made or is about to be made for one or more invoices. The document is sent alongside an EFT or ACH transfer, providing the seller with all the remittance detail needed to apply the payment to the correct open accounts.
The EDI 820 can also be used to settle multiple invoices in a single payment. The RMR segments within the document reference each individual invoice, allowing the seller’s accounts receivable team to reconcile the full payment across several outstanding balances.
Additionally, buyers may use the EDI 820 to advise the seller of important adjustments to the original invoice amount — such as deductions, discounts taken, or disputed charges — before or at the time of payment.
2. When Sent by a Financial Institution (Remittance Advice)
In some workflows, a financial institution may issue an EDI 820 on behalf of the payer. The buyer’s bank receives the payment instructions and transmits the 820 along with the funds transfer to the seller’s bank. The seller’s bank then forwards the remittance advice to the seller, allowing them to match the payment against their outstanding invoices.
This approach is common in large-volume B2B payment environments where banks act as intermediaries for electronic funds transfers.
EDI 820 in Healthcare and Insurance
The EDI 820 also plays a specific role in the healthcare industry. It is used by plan sponsors — companies that provide healthcare benefits to their employees — to transmit premium payment information to health insurance plans. In this context, the 820 communicates details about premium amounts, enrollment counts, and payment adjustments.
The EDI 820 should not be confused with the EDI 835, which is the Healthcare Claim Payment/Advice used by health plans to send payment information to healthcare providers.
What Are the Benefits of Using EDI 820?
Automated Payment Reconciliation and Cash Application
The EDI 820 automates the process of matching payments to invoices in the seller’s accounts receivable system. Rather than manually cross-referencing paper remittance advice with open accounts, the payment data flows directly into the seller’s ERP or accounting software. This enables automated cash application, reducing the time it takes to close open accounts and improving overall Days Sales Outstanding (DSO).
For sellers, this automation enables management by exception — accounting teams only need to intervene when alerted to a discrepancy, rather than manually tracking and reconciling every payment.
Reduced Manual Processing and Data Entry Errors
Without EDI, accounts receivable and accounts payable teams often rely on manual processes — copying and pasting payment information across multiple documents, re-keying data from paper checks or PDF remittance notices, and manually issuing functional acknowledgements for each order. These manual steps create significant potential for errors and delays.
The EDI 820 eliminates these manual touchpoints by transmitting structured, standardized payment data that can be automatically imported into business systems. This reduces human errors, speeds up processing times, and frees up staff to focus on higher-value tasks.
Improved Cash Flow Management and Data Security
By accelerating the payment and reconciliation cycle, EDI 820 helps both buyers and sellers improve cash flow visibility. Sellers receive payment confirmation faster, and the detailed remittance data allows for more accurate financial forecasting and planning.
The data encryption used for electronic data interchange also keeps buyer, seller, and payment information significantly safer than traditional methods such as fax, email, or PDF. EDI 820 documents are transmitted through secure channels — including Value Added Networks (VANs), AS2 connections, or secure FTP — ensuring sensitive banking and payment data is protected in transit.
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What are Common EDI 820 Challenges?
Payment Discrepancies and Missing Master Data
One of the most frequent issues with EDI 820 processing is incorrect or missing master data. If the payer’s identification numbers, invoice references, or bank account details do not match what the seller has on file, the 820 may be rejected or require manual intervention to resolve. Ensuring that trading partner master data is accurate and up to date on both sides is essential for smooth EDI 820 processing.
Payment discrepancies — such as partial payments, unexpected deductions, or adjustments that don’t align with the original invoice — can also create reconciliation challenges. Clear communication between trading partners about payment terms and adjustment codes helps minimize these issues.
Matching Payments Across Multiple Invoices
When a buyer uses a single EDI 820 to pay multiple invoices at once, the seller’s accounts receivable system must be able to parse and apply the individual RMR segments correctly. If the system is not configured to handle multi-invoice payments, or if the remittance detail is incomplete, manual intervention may be required to allocate the payment across the correct accounts.
This challenge is especially common in high-volume B2B environments where buyers regularly consolidate payments. Having an EDI solution that accurately maps and translates multi-invoice 820 documents is critical for maintaining efficient cash application.
How EDI 820 Connects to Other EDI Documents
The EDI 820 does not operate in isolation. It is part of a broader ecosystem of EDI transaction sets that work together to facilitate the financial supply chain.
EDI 810 Invoice and EDI 850 Purchase Order
The EDI 820 is most commonly sent in response to an EDI 810 Invoice. After the seller ships goods and submits an invoice via EDI 810, the buyer processes the invoice and generates an EDI 820 to confirm payment. The 820 references the original invoice number(s) from the 810, enabling the seller to match the payment to the correct accounts.
In some workflows, the EDI 820 is triggered by the receipt of an EDI 850 Purchase Order rather than an invoice — particularly in industries where payment terms are tied directly to the purchase order.
EDI 997 Functional Acknowledgement
After the seller receives an EDI 820, their EDI solution generates an EDI 997 Functional Acknowledgement. The 997 is sent back to the buyer to confirm that the 820 was received and processed without syntax errors. This acknowledgement does not confirm that the payment has been accepted or applied — only that the EDI document was technically valid and successfully received.
EDI 820 vs. EDI 835
Both the EDI 820 and EDI 835 deal with payment information, but they serve different purposes. The EDI 820 is a general-purpose payment order/remittance advice used across industries — retail, manufacturing, wholesale distribution, automotive, and more. The EDI 835, on the other hand, is specific to the healthcare industry and is used by health plans to send payment and explanation of benefits (EOB) information to healthcare providers.
The EDI 820 is used by plan sponsors to send premium payment information to health plans, while the EDI 835 flows in the opposite direction — from health plans to providers. Understanding this distinction is important for organizations operating in the healthcare space.
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EDI Automation and ERP Integration
Vantree’s EDI Automation integrates directly with over 35 leading ERP systems — including SAP, Microsoft Dynamics 365, Oracle, NetSuite, Sage, QuickBooks, Acumatica, and Infor — so payment data flows seamlessly between your business systems and your trading partners. This eliminates manual data entry, reduces errors, and ensures your EDI 820 transmissions are always timely and accurate.
Vantree’s Web EDI for Payment Processing
Vantree’s Web EDI is a cloud-based solution that allows businesses to send and receive EDI documents — including EDI 820 — through an easy-to-use web interface. With 24/7 transaction visibility, connections to all major EDI networks, and personalized workflows, Web EDI simplifies payment processing for businesses of any size.
