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A lack of payment data security can have grave consequences for your business. You could fall foul of legal and complicated regulatory requirements, resulting in fines and legal action. Or you might leave your business and customers open to fraud and other financial crimes. In reality, even the most minor breach can devastate customer trust and your business’s reputation to such a degree that it’s hard to recover.
Fear not. EDI provides an incredibly secure means of transmitting information relating to payments without sacrificing the speed and agility every modern business needs. Read on to understand everything.
What Are EDI Payments?
EDI stands for Electronic Data Interchange. It’s the de facto means for exchanging documents electronically (computer-to-computer) between trading partners in many industries. It’s so fast, secure, and reliable that large companies like Amazon and Walmart won’t do business with companies unless they’re EDI compliant. So, if you want to transact with the dominant players in your industry, EDI is essential.
In the payments world, several key documents accompany any movement of funds. These include purchase orders, invoices, bills, credit and debit notes, and remittance information. Most companies still type these documents out by hand, print them, stick them in an envelope, and mail them out. But this is inadequate in the digital age. It’s slow, unreliable, and lacks the data security measures most modern trading partners and customers expect. In short, if you’re still handling payments this way, you’re vulnerable to security breaches.
EDI encrypts payment information, so bad actors can’t intercept it. It automates data flow, guaranteeing safe dispatch and receipt of documents around the clock (no human input is required). And it prescribes rules for document structure, data formats, codes, and transmission protocols, ensuring documents exchanged are accurate, complete, and compatible with every company’s internal systems.
What Is EDI 820?
One of the best things about EDI is its versatility. It’s applicable across a broad swathe of industries and can be tailored to suit any use case. Each use case has its own “transaction set” denoted by a 3-digit code, creating a common language that keeps industries and all the players within aligned.
EDI 940, for example, is a Warehouse Shipping Order sent by sellers to third-party logistics providers. EDI 204, the Motor Carrier Load Tender, is used by manufacturers, distribution centers, or any other shippers to create, update, or cancel a shipment. EDI 837 is used for health care claims.
So, what about EDI 820?
EDI 820 is the most critical transaction set for EDI payments. An 820 document includes payer and payee identification, bank and account IDs, invoice number(s), adjustments from an invoice, and billed and paid amounts. This information allows suppliers (and health plans in the case of the healthcare industry) to reconcile payments they receive against invoices issued.
820 EDI transactions are commonly used in the following scenarios.
- A business wants to instruct a bank to make a payment, such as a funds transfer, to a payee.
- A business wants to communicate directly with individual suppliers about the details of a pending payment, including any adjustments reflected therein.
- A business wants to provide premium payment information to a health insurance provider.
EDI 820 typically accompanies the electronic transfer of funds for payment of goods, insurance premiums, or other transactions. It’s important to make clear that EDI doesn’t handle the actual transfer of funds. That’s usually coordinated through Automated Clearinghouse (ACH) system. EDI 820 is bundled with the ACH transfer, adding detail to the transaction.
What are the Benefits of EDI Payments
1. Boost Speed and Elevate Efficiency
EDI allows businesses to quickly and easily exchange payment information, streamlining processes and eliminating the need for slow, manual data entry. With EDI, users can create, send, and receive multiple documents in a matter of seconds, freeing up time to focus on more valuable tasks. A higher degree of automation supercharges efficiency.
2. Eliminate Mistakes
EDI payments are transmitted without the risk of human error (no typos). Standardized data formats and built-in rules ensure documents exchanged are accurate and complete, and any inconsistencies are automatically flagged for a quick resolution. This prevents costly mistakes and delays and maintains the integrity of the data.
3. Cut Your Costs
With EDI payments, you can cut costs across several dimensions:
- Reduced labor costs: Fewer people are required to process payment information. Fewer errors mean less time wasted on rework and cleaning up after mistakes.
- Reduced materials costs: EDI payments eliminate the need for paper-based processes, such as printing and mailing invoices or purchase orders. This can result in significant cost savings on materials, such as paper, ink, and envelopes, as well as physical storage.
- Improved cash flow: EDI payments enhance the efficiency of the payment process, leading to more timely payments and better cash management.
- Dodge fines: Eliminating mistakes and delays in the documentation process can help you avoid penalties, service level agreement (SLA) violations, refund requests, and chargebacks.
4. Enhance Security
EDI payments are encrypted and transmitted electronically via secure protocols, which reduces the risk of data breaches through physical means, such as the loss or theft of paper documents. Access to EDI software can be carefully monitored and controlled so only authorized users can gain access.
5. Improve Data Visibility
EDI allows businesses to store, access, and analyze payment data more efficiently than they could with physical documents. Companies use their data to make informed decisions, spot patterns, and anomalies, and continuously improve their processes. The efficient nature of EDI data management enables businesses to leverage their precious data’s value fully.
6. Seamless Integration
EDI allows businesses to easily share payment data within and outside the company, promoting collaboration and breaking down silos. It can seamlessly integrate with core back-office systems, including your ERP and accounting system, to reduce the order-to-cash cycle time and drive efficiency.
In Summary
EDI payments are the go-to solution for exchanging purchase orders, invoices, remittance advice, and other payment information because they’re fast, safe, and precise. Companies of all kinds in industries ranging from healthcare to retail to logistics benefit from this reliable, automated digital exchange technology.
If you want to drive efficiency in your business, reduce costs, and build trust with customers and trading partners, then we’re here to help. Contact one of our dedicated EDI experts, and we’ll talk you through all the options.
