820 Payment Order / Remittance Advice (RA) definition and important notes
The 820 Payment Order / Remittance Advice can be used in three ways: (1) It can be used as a remittance advice to describe detailed information about a payment. (2) It can be used to authorize financial institutions to electronically transfer funds (EFT) from one institution to another, as a method to get rid of manual checks. (3) It can use both methods, to send a remittance advice and make a payment. This provides flexibility for companies that want to receive the remittance advice before receiving the actual payment.
While most EDI transactions are between two trading partners, the 820 Payment Order / Remittance Advice can be a little bit more complicated, because up to four parties may be involved: the payer, the payer’s bank, the payee, and the payee’s bank.
820 Payment / Remittance Advice Important Notes
The 820 and Electronic Funds Transfers are not just limited to the process of moving money. Payments involve both the treasury and the accounting function, and the 820 Payment/RA should be thought more of a business process than simply a transaction. The exchange of information from the payer’s accounts payable program to the payee’s accounts receivable program is combined with the transfer of funds from the payer’s account to the payee account. The ability to automate this and reconcile the payments with the 810 invoices can be a significant pay-off.
Sometimes companies resist implementing an Electronic Funds Transfer because they assume that it will effect the float time of cash. This is a false assumption because the release of payments can be scheduled for a specific date.
In the healthcare industry, payments of healthcare claims are sent in an 835 Healthcare Claim Payment / Advice 835.
The 821 Financial Information Reporting is often send by the bank to report balances, detail and summary financial transactions, and other related financial accounting information. Some companies use it specifically to receive paid check and draft information from their banking trading partners.
The 827 Financial Return Notice, used to report to the originator the inability to process; or modifications to, the original payment order.