We covered what comprised of payment processing in our last post.

http://faoblog.com/processes-ap-payment-processing/

What are the key process steps / stages involved in payment processing?

  • First and foremost the accounts payable processes should have completed and the various bills, invoices and claims should have been approved for payment.
  • Normally most of my clients had a pre-defined cycle, meaning, the payment run would happen on some specified days only, this could be monthly for very small companies, or weekly or twice a week. Some companies (very few) would do it daily as well.
  • Payment run specifies the process / procedure where all approved payables trigger a payment instruction.
  • Before the payment run happens, the cash management unit will review the amounts approved for payment, verify availability of funds, and then mark the payables as good for release.
  • There could be possibilities where funds available are insufficient. In such a case, priorities will be set. Top on this list will be utilities payments, followed by employee expenses, followed by other payables, based on the criticality at the point in time.
  • Then the payment run will be triggered. This will also trigger an entry for set-off of the payable amount in the books of accounts / ERP system.
  • Based on the payment mode selected, either instructions will be generated for the cheque / check cutting unit or sent to the bank for electronic transfer. For the cheques / checks, an information may also be sent to the bank to honor these payments. Thought this is not mandatory, but forms a good practice.
  • Some banks require this intimation to be directly uploaded through the web / an upload file, which is an activity easily done off-shore. Normally cutting of physical cheques / checks will always remain an in country requirement.
  • The cheques / checks and the intimations will be dispatched to the entities which have to receive the payment.

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