Payment Order/Remittance Advice (820) Transaction: VICS Requirements
The Payment Order/Remittance Advice (820) allows for the electronic payment of invoices sent to the buyer’s organization.
The transaction provides three options:
1) to order a financial institution to make payment to a supplier on behalf of the buyer;
2) to report the completion of payment to a supplier by a financial institution; and
3) for the buyer to advise the supplier on the application of a payment made with the payment order or by some other means. Each of these three functions will impact an organization differently.
The first function: There are two parties involved, the buyer and the supplier. In-house systems in many buyer organizations can readily access this information. The information regarding application of funds, generally under the supervision of the accounts payable department, is referenced frequently as vendors inquire about allocation of funds remitted. Account adjusters perform the task of certifying invoices for payment and handling questions from their account base.
If this information is managed by a financial system, it can be easily reformatted to an EDI transaction and transmitted between parties. Since buyer specific identification codes are generally maintained in-house, a cross reference table should be in place to standardize such codes (Note: Buyer assigned codes should be converted to a Global Location Number (GLN); or DUNS or DUNS + 4). Implementation at this level reduces the manpower required to perform day-to-day fact finding functions that are related to remittances.
The second function: This function involves a financial institution and the supplier. The buyer provides the remittance information to the financial institution so it may be relayed to the supplier once payment is rendered. The transfer of this data may be made using an EDI transmission or other established formats. The financial institution must be EDI capable and maintain trading partner relationships with both the suppliers and the buyers.
The third function: This function automates the remittance process and combines the first two functions. Pertinent financial information is available on the buyer’s internal system to format the document. Systems development should include provisions for currency conversion (if international), Global Location Number (GLN); or DUNS or DUNS + 4, financial institution identifications and other pertinent data. Data and network security assume increased importance. The data received by the financial institution is used to automatically make payment to the supplier. Therefore, significant timing issues arise when funds are transferred in this manner. Corporate EDI policy and systems should be in place to safeguard against misappropriated information. Implementation of the Payment Order/Remittance Advice (820) impacts the area of accounts receivable and the applications systems that support this function. The supplier needs to initiate the necessary controls and reporting structure into the accounts receivable reconciliation process.
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