-MURALI KRISHNA

Payment Processing
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AP
PROCESSES
Vendor
Management Data Entry
System Edits
Payments Customer
and Controls
Service
• Vendor Set Up • Invoice Keying • Quality Checks • Check Run •Customer Service
• Vendor Account
• Maintenance • 3 Way Matching •Duplicate Checks • Wire Payment •Remittance for
Payments
• Internal Approvals • Coding for NonPO Invoices. •Supplier Statement • EFT
Analysis
• Query Management
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SESSION OBJECTIVES
At the end of today’s session, you will be able to:

 Describe the various modes of payments.

 Describe the Payment Run process.
 Identify the various reasons for a check to return.
 Identify the remedies available in case of a check
return.
 Describe the concept of Stop Payments.
 Describe the process of Third Party Payments.
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AP PROCESS AND SUB

PROCESSES
Input Process Output

Sort, prepare Is the vendor

Is the invoice Yes Yes

scan invoice system?

Invoices
received No Set up No
vendor
Is it approved?

No Yes No Matching
Fix Matching
Validation
Discrepancy
Yes Process
Get Approval Duplicate Invoice
Check
Is Invoice No
Duplicate? Resolve

No Approved? Yes
Delete
Invoice Email
Yes Phone
Fax
Contact Vendor/
Mail
Buyer

Rework
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PAYMENT
METHODS
Different methods are used to disburse
payments:

Check

Wires

Electronics Fund Transfer

(EFT) P-Card
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CHECK

A negotiable instrument drawn against deposited funds, to pay a specified amount

of money, to a specific person upon demand.

It is the most preferred mode of payment made to the supplier on the due

date. It can be encashed by the vendor on presenting it to the bank.

Check Run refers to the process of cutting checks to make vendor

payments. Checks are in transit, if:

 A check is cut
 It has been dispatched to the vendor’s address and
 It has not yet reached the vendor
Checks, in most cases, are printed and mailed by an outsourcing agent.
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WIRES
It is the transfer of the due amount directly to the supplier’s bank.

It is an electronic transfer of funds to the vendor

concerned. It is a faster mode of payment.

Instructions are sent to the bank to wire a particular
amount to a vendor.

This mode of payment is typically used for international

suppliers and can be paid in
Foreign Currency or USD.

Wire payments are ‘same day’ payments that are costly to

both GE and their suppliers.

These are reserved for International banking transactions.

WHAT IS MEANT BY
• Processing fund transfers involves two key elements:
TRANSFER?
• Clearing
• Settlement

• Clearing is the transfer and confirmation of information between the payer

(sending financial institution) and payee (receiving financial institution).

• Settlement is the actual transfer of funds between the payer’s financial institution
and the payee’s financial institution.
 WHAT HAPPENS IN A TRANSFER?
• Payment messages may be credit transfers or debit transfers An institution initiates
a funds transfer by transmitting a payment order

• Payment order processing follows the predefined rules and operating procedures of
the large-value payment system used.

• Typically, large-value payment system operating procedures include

• Identification
• Reconciliation
• Confirmation procedures

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WHO DOES FUNDS

TRANSFER?
• There are two primary networks for inter-bank, or large-value, domestic, funds
transfer payment orders.
• Fedwire® Funds Service
• Clearing House Interbank Payments (CHIPS)
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FEDWIRE® FUNDS
SERVICE
• Real-time gross settlement system (RTGS)

• Enables participants to transmit and receive payment orders between each other
and on behalf of their customers

• Requires participants to maintain an account with a Federal Reserve Bank

http://www.frbservices.org
/
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CHIPS
• Premier bank-owned payments system for clearing and settling large value
payments

• Real-time, final payments system for U.S. dollars

• Owned by financial institutions

• The payments transferred over CHIPS are often related to international

interbank transactions, including the dollar payments resulting from foreign
currency transactions.

To check for valid CHIPS ID - http://www.chips.org/NewUidSearch.

php
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• S.W.I.F.T
Society for Worldwide Inter-bank Financial Telecommunication

• Operates as a messaging system, transmitting instructions to move funds

• Developed the Bank Identifier Code (BIC) to ensure error-free identification of

parties in automated systems

• BIC is a unique address which, in telecommunication messages, identifies precisely

the financial institutions involved in financial transactions.
• BICs either have 8 or 11 characters

Note : SWIFT is the designated registration authority for the assignment of

BICs and for the publication of BICs in the BIC Directory.
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Anatomy of a BIC
BANK CC LL

Bank Code Country Code Location Code

BANK identifies the bank, CC is the ISO* country code LL stands for Paris. It is the
banque BNP-Paribas. This four- for France. The country code Location Code. This 2-character
character code is called the identifies the country in which code may be alphabetical or
Bank Code. It is unique to each the financial institution is numerical. The location code
financial institution and can located. provides geographical distinction
only be made up of letters. within a country, e.g., cities,
states, provinces and time
zones.
4 2 +
2
8 Characters
+
The Bank Code, Country Code and Location Code constitute a SWIFT BIC or Destination.

*ISO - International Organization for Standardization

 ANATOMY OF A BIC
BANK CC LL MAR

Bank Code Country Code Location Code Branch Code

4 + 2 + 2 + 3

11 Characters

• BNP-Paribas has several branches throughout France.

• MAR identifies the banque BNP-Paribas branch in Marseille, a city in the South of France.

• This 3-character code is called the Branch Code. It identifies a specific branch, or, for example,
a department in a bank within the same country as the 8-character SWIFT BIC. This code may
be alphabetical or numerical. The Branch code is optional for SWIFT users.
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IBAN
• International Bank Account Number (IBAN)
• Used internationally to uniquely identify the account of a customer at a financial institution,
to assist error-free cross-border payments

Who Provides the IBAN Number?

• Only the bank servicing an account can provide the correct International Bank Account
Number (IBAN) of that account and the related Bank Identifier Code (BIC).
• If you need an IBAN, you need to contact the owner of the account.
• If you attempt to generate IBANs of your suppliers or other business partners, you risk
having incorrect IBANs.
• If you use an incorrect IBAN in your cross-border payment instructions, you risk making
payment to the wrong account or incurring a delay in payment and higher processing fees.

Note: Most of the European Payment needs mandatory IBAN #. IBAN is not a routing
tool.
ACH
• Automated Clearing House (ACH)

• Secure payment transfer system that connects all U.S. financial institutions

• ACH network acts as the central clearing facility for all Electronic Fund Transfer
(EFT)
transactions

ACH operators:
• American Clearing House Association

• Federal Reserve

• Electronic Payments Network

• Visa
 FORMATS YOU SHOULD BE AWARE OF…
• CTX Format - Corporate Trade Exchange: Remittance advice and payment are
sent electronically to your company’s bank. You then coordinate with your
banking institution on how to receive notification and remittance advice from
them.

• CCD - Cash Concentration/Disbursement: Payment is issued electronically to your

bank, and the remittance advice is mailed from your bank the same day funds are
deposited. Remittance advice by this method is less timely than CTX.
NOTIFICATION OF CHANGE
(NOC)
• NOC is generated when the receiving bank requests that a correction be made
to information on an item.

• The most common occurrence for an NOC is when banks consolidate routing
transit numbers.

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 Cross Currency
• A financial contract which commits two counter parties to exchange, over an
agreed period, two streams of floating rate interest payments in different
currencies.

• Depending on the hedging situation, there can be principal exchanges upfront,

at maturity and/or at coupon periods during the agreed period.

• These principal exchanges are made at a pre-agreed upon exchange rate set at the
start of the contract.
EFT
• Electronic Funds Transfer (EFT) ensures funds transfer from one bank account
to
another using electronic links.
• It is a faster mode than payment through check.
• It can be used to make payments into domestic banks (within US) in USD
only.
 PURCHASING CARD/P-CARD

• It is a credit card which allows you to make small dollar purchases without going
through the traditional process of requisition, PO, etc.
• When a purchase is made, the customer presents the card for payment.
• Once the transaction is approved, the information is stored and reported back to the
customer on a monthly statement. This supplier will be paid between 48 to 72 hours.
The acquiring bank will deposit the money electronically and directly in to the suppliers
account.
PAYMENT RUN
PROCESS
HOW DOES PAYMENT RUN
HAPPEN?
• Invoices that are due for payment are selected.

• Selected invoices create a payment file that includes all payment methods.

• In most cases, an outsource supplier is involved in processing and mailing the checks
&
drafts.

• Wire and EFT payments that are due are sent to the bank directly.
DUPLICATE AUDIT TOOL
Genpact Proprietary tool “Genpact Duplicate Audit” tool

Searches for duplicate invoices based on an algorithm and allows

for front end duplication of invoices as against a post mortem
analysis

The query is executed before a payment run to identify potential

duplicates

If duplicate invoices are found after the query is complete,

the invoices are excluded from the payment list in the ERP

Pass reversal entries to write off the debit entries (Duplicate

Invoices) as specified by business
Duplicate Preventive Tool 27

Potential failures Effect Genpact Solution Tool features

•inaccurate data entry •Wrong or duplicate payment Developed a proprietary tool, •Rule based intelligent tool to
•wrong supplier selection made to the vendors which will assist in identify potential duplicates in AP
•direct manual entry in the ERP •Huge financial loss to the the identification and •Generates a list of potential
•inadequate knowledge transfer Organization prevention of duplicate duplicates vouchers through
payments from being made to combinational search criteria
vendors

Methodology

Download Upload to the tool that Tool identifies potential Detailed analysis of data Report out and take
payment file from has historic payment duplicates and provide identified as the required action before
ERP data for agreed period output in an excel sheet probable duplicate item payment run

Dependencies
•Historic data of all payments for a period of
12 to 24 months
•Daily payment file in agreed format
•Manual audit of potential duplicates on a
daily
basis before payment execution
Benefits
•Daily Audits before payment runs rather than
yearly recovery audits
•Duplicates Identified stopped before payment
•eliminates effort spent in recovery from vendor,
legal action, follow up etc.
•enhanced controllership within the AP process

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ROBUST DUPLICATE
Basic Check
CHECKS
 Same invoice number, amount, invoice date and vendor.
 Same invoice number, amount and vendor.
 Same invoice number and vendor.
 Same amount and vendor.
 Same purchase order, vendor and amount.

Intermediate Check

 Same numbers in the invoice number, amount, invoice date and

vendor fields (removes many un-needed characters in invoice
number such as punctuation).

 First four digits of invoice number, amount, invoice date and

vendor (e.g., identifies duplicates where a user enters the invoice
number and then a duplicate payment with an invoice number with
an “A” at the end).
ROBUST DUPLICATE CHECKS
Advanced Check
 Same invoice number, amount, invoice date and different vendor
(identifies same invoice payments to vendors with a different name
in the accounts payable system such as “ATT” and “AT&T”).

 Same invoice number, amount, vendor and different check

(identifies same invoice payments made on different days to
vendors that may normally go undetected).

 Report of all vendors that are comprised solely of duplicate

payments. Report of all vendors where only two similar payments
were made (e.g., only two $1,000 payments in the period
reviewed).
RETURNED
CHECKS
• Transmitted to incorrect supplier

• Sent to incorrect remit

• If new remit to is not updated in the

system

• Repeat payment undeliverable

• Other reasons

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REMEDIES: CHECK TRANSMITTED TO AN

INCORRECT SUPPLIER
• Contact buyer listed on the PO

• Buyer to contact supplier to retransmit the correct Supplier

number

• Buyer to correct the Supplier number on the PO

• Void check
REMEDIES: CHECK SENT TO INCORRECT
REMIT
• Contact buyer listed on the PO

• Buyer to contact supplier to retransmit the correct Supplier

number

• Void and reissue check to new Supplier number

• Buyer to correct the Supplier number on the PO

REMEDIES: IF NEW REMIT IS NOT
UPDATED •
Vendor set up representative to add the new site address/remit to

• After set up, Vendor set up representative to intimate the Check Run
representative

• Void and reissue check to new site/remit to

• Business to modify all PO’s to reflect new site code listing, if applicable.
REMEDIES: REPEAT PAYMENT
UNDELIVERED•
Send email to contact listed on repeat payment form requesting new remit

• Request contact to identify new remit (Not clear!)

• Forward a request to repeat payment rep to change supplier number or site

code

• Void and reissue the returned check to the new supplier number
SCENARIO
We’ll deposit the
Hey! I won check right away
a lottery ticket for in the bank!
$50,000
SCENARIO
Oh! My, I cannot
find the check
SCENARIO
WAIT! Don’t panic…

No one can cash the check

There’s a solution!

MAKE A STOP
PAYMENT!!!
SCENARIO

Oh!oh!
I’ll make a stop
I lost the check you
payment right away.
gave me for winning
Please confirm the
the lottery
check number
SCENARIO
Since the check has
been lost and stop paid,
we’ll reissue another
check in your favor!!!

The Lottery agency informed the bank and made a stop pay!

The check cannot be used by anyone now!!!

 WHAT IS STOP PAYMENT?
A Stop Payment is an order to the bank not to honor the

payment of a check after it has been delivered but before

it
has been cashed.
Void the
Verify Place Stop
NO Check In the
Check to Check Pay on the
status Of AP Sys.
be stopped? Cashed ? Check with
check With
Bank
Bank
YES

Send the
Check copy
To
requestor

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 WHEN IS STOP PAYMENT DONE?
• When check is misplaced
• If the check has not reached the vendor
• If an invoice has been released to a wrong vendor
• If the wrong dollar amount has been released for
payment
• If a duplicate invoice has been released for payment
• For any other reason

Note: The payment must be put on hold in ERP once the confirmation on stop
payment
is received

A check is considered cancelled if it is stop paid!

Third Party Payments
CIRCUMSTANCES UNDER WHICH PAYMENT CAN BE
MADE
TO THIRD PARTIES

• Factoring

• Pay
Warrants

• Tax levies

• Leases

re-routed to the third

party!
 Factoring
•Factoring is a form of commercial finance whereby a business sells its accounts receivable

(in the form of invoices) at a discount.

• It involves payments to finance companies for vendors who have sold their account
receivable invoices.

•If specified in an invoice, the check must be payable to the vendor or the factoring

company.

• Vendor’s agreement is essential for selling the receivables

Pay Warrants
•Sometimes, vendors might have outstanding payments due to another GE company and might be unwilling to pay.

• In such cases, a pay warrant is issued by the account receivables diverting funds.

•A new vendor has to be set up payable to the original vendor and to GE Accounts Receivable.

• The actual vendor should be put on hold until notification to remove warrant is received.
TAX LEVIES
• Levies can be imposed on vendors who have tax liabilities with a Federal or a State government

• Sometimes, buyers receive levy notices stating that outstanding payments are sent to
• the IRS or state in order to satisfy the vendor’s tax burden.

• The vendor should be placed on hold thus placing a lien on all future payments.

• If there are no outstanding invoices, such communication should be sent to IRS.

ASSIGNMENT OF LEASES

•When a leasing company sells their lease to a bank or finance company, it is called assignment.

•Legal documentation should be obtained outlining the agreement between the vendor and the bank

• The vendor should be set up payable to the bank or the finance company only

• On setup, it is not necessary to include the original vendor’s name.

PURCHASE RETURNS

• Reasons for Purchase Returns:

• Goods do not meet a specified criteria

• Goods are defective

• Accounts Payables team will collect the payment that has been already made to the

vendor.
DEBIT AND CREDIT MEMOS

• There is all possibility that goods and services purchased might:

• not meet specification,
• not have been ordered,
• be short of the amount ordered or billed, or
• have an invoice error.

•In such cases, adjustments between the buyer and seller are to be made using debit or credit memos.

• Debit and Credit memos are documents which inform the other party in a transaction
• that an adjustment has been made.

• All credit and debit notes state the corresponding invoice number as a reference.
DEBIT MEMO

Debit Memo is a note or a memo indicating the amount owed by a company or a person.

These actually originate from uncollected credits.

• A Debit memo is raised in the following cases:

• Duplicate payment

• Payment made to a wrong vendor

• Extra payment

• Services cancelled

• Other reasons

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AGED DEBIT MEMOS

• Uncollected debit memos begin to age. Thus, they require intense collection methods,

including research, calls to the vendor, etc.

• When items begin to age, the responsibility of collections is turned to collection agencies.

• The collection agencies assist Accounts Payable with collections for a fee.

• The longer a debit ages, the less likelihood of it being collected, either by the

Accounts Payable department or by the collection agency.

• In the event of all measures failing, the amounts due are written off after obtaining
the

• necessary approvals from the buyer.

Note: Vigorously follow up to collect - Do not allow items to age!

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CREDIT MEMO

A credit Memo is a note or memo indicating the amount owed to a company or a person.

It is used to reduce the accounts receivable on the books of the vendor.

 A Credit Memo is raised in the following cases:

 Underpayments

 Payment to a wrong vendor

 Other reasons
DOWNSTREAM TASKS
VENDOR RECONCILIATION
 Vendor Statements are received on a regular basis from the Vendors. These are then

compared with the General Ledger balance of that particular vendor.

 The process of identifying and classifying the entries of differences between the Vendor

statements and the GL is referred to as a Vendor Reconciliation.

 The purpose of the reconciliation is to rectify or resolve the open items for accurate tallying of

balances.

Note: Vendor Reconciliation process is business specific. The reconciliation process is done

basis requests received from business.

RECONCILIATION PROCESS
CORPORATE CRITERIA

•Description/purpose of the balance sheet account must be documented

•Total of items listed equals ending balance in the general ledger account

• Items supported by sources independent of the general ledger being reconciled

•Account reconciliation and supporting documentation are accessible

•Open items resolved in the quarter identified

•Account Reconciliation is reviewed by Peer/Manager and indicated by signature and date

•Account Reconciliation is completed timely.

OTHER DOWNSTREAM TASKS

Downstream
• Reconciliation
• Printing of checks and Remittances
• GL Closing