CHAPTER 5: CASH APPLICATION, DEDUCTIONS, AND DISPUTE MANAGEMENT
WHY ISN’T AR SELLING THE BENEFITS OF EFT TO CUSTOMERS? Electronic payments are supposed to make business-to-business transactions faster and more accurate. And although the use of paper checks is on a steep decline, as reported by the Federal Reserve Bank, the U.S. still leads other countries in its use of them. 1 The key reason is reluctance to change. Moving to electronic payments changes the process flow and how the remittance information is received. Since the electronic payments are deposited straight into the bank, cash application needs a new trigger to reconcile the amount received with the amount due. Important information, including the invoice number, purchase order, invoice amount, and details about any adjustments may now be provided in many different formats, which creates an inefficient process. The remittance information may be lacking if the issuer’s bank does not have the capability to send remittance data, which can slow down the cash application process and require contacting the customer. STP 820 (REMITTANCE DATA) One initiative to address the problem of connecting remittance information to payment in order to enable efficient cash application is STP 820 (STP refers to straight-through processing), a standard that is designed to allow payments and payment information to travel together, with the aim of streamlining AR. Sometimes, there are errors in processing electronic payments, even when remittance information is sent with them. Some companies provide ACH-based information, some provide separate data files, others provide EDI-based (transaction code 820) information, and still others provide paper-based remittance information.
In other words, instead of using a jumbled system without a standard format for remittance information, the EDI STP 820 seeks to establish a usable standard.
The goal of straight-through processing is to enable electronic payments to flow seamlessly from the originating customer or cash management systems through the banking infrastructure to the receiving company’s AR system without human intervention. Companies need the same information as is typically put on a check stub. The EDI STP 820 remittance advice may contain the following information: Invoice number or PO number
Payer information (company name, address, account number) Payee information (company name, address, account number) Billed amount Amount paid Bank account number Any invoice adjustments (discounts, short-pays, etc.) and reason
Tax information Date and time
1 https://www.atlantafed.org/blogs/take-on-payments/2023/08/14/global-data--tracks-decade-long-decline-in-check-payments
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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