I have written a little about electronic payments or automating the payment process, but I had someone recently ask me about remittance.
To Be Clear
I really hate writing this, but I know there is a small group of readers that are new to the Accounts Payable and Payment world, so I want to make sure you know what a remittance is. A remittance is the way a vendor holds your company hostage on the payment process. No, just kidding, in its simplest form the remittance is (traditionally) a slip of paper that gives the vendor the correct amount of information to apply the payment.
You Would Think…
You would think that this is a very simple proposition – applying the payment, but it gets very confusing when there are multiple locations paying different invoices at the same time. The way the vendor has gotten around this is by leveraging a paper check with a paper remittance. Sure it is manual, but for years and years and years the process has seem to work pretty well.
No More Paper
Now what, right? You would think that if the paper is gone the system will collapse. (And) It does. Especially when it comes to those vendors that aren’t really good at customer service to begin with. The symptoms that show this collapse are misapplied payments, arrant late fees and discontinued services. The thing you have to be careful with is that the last three symptoms have comes as a result of your brand new AP Automation project. The goal of AP and Payment Automation is to make things better not worst.
The key to the fix of payments being applied correctly is the vendor. If you walk the problem back (1) The payment is misapplied (2) Not enough information (3) Payment information is in the wrong form (4) Information sent with the payment (5) Lack of information because of AP Automation – you can see that each step of the new problem adds a little to the over all problem. The true fix is you can’t use a new system and apply it to an old system and expect that things work.
The new system starts with asking the vendor what they need in the form that the vendor needs it, so when the electronic payment is transmitted it has the correct information. Now, you may think this is what ACH does, but when I write about electronic payments I am not just referring to ACH and I am referring to credit card payments too. I have been having huge success with a single vendor locations to where they tell a database through a customer service interface how they want to receive their remittance… regardless of how the payment was made (ACH, Card or Paper). The key is the database is serving many vendors and many payers, meaning the payers can benefit from some economies of scale and they don’t have to do the information collecting on their own.
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