Types of Electronic Payment

An electronic payment can be either:

• Credit transfer, initiated by the payor

• Debit transfer, initiated by the payee as authorized by the payor

Regardless of how a credit transfer was initiated, the payor sends a payment order to its bank in the form of an X12 Payment Order/Remittance Advice (Transaction Set 820).

The bank then adds data in a format required by the United States by the National Automated Clearing House Association (NACHA) and originates the payment through the Automated Clearing House (ACH) system. A corporate-to-corporate payment then performs the following functions:

• Transfers actual monetary value

• Transfers notification of payment from payor to payee

When a credit transfer occurs, these two functions are sometimes treated as one, and sometimes treated separately. These functions can travel in either of the following ways:

• Together through the banking system

• Separately and by different routes

X12 Transaction Set 820 is a data format for transporting a payment order from the originator to its bank. This payment order can be:

• Instructions to the originator’s bank to originate a credit transfer

• Instructions to the TP to originate a debit transfer against the payor’s bank account

Once this decision has been made, Transaction Set 820 transports the remittance information to the beneficiary. The transfer can either be through the banking system or by a designated route separate from the transport of funds.

Whenever the Transaction Set 820 remittance information is not transferred with the funds, it can be transmitted directly from the originator to the beneficiary. It can also be transmitted through an intermediary, such as a VAN.