Electronic Funds Transfer EFT Overview

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Electronic Funds TransferEFT Overview
MHC Software, Inc. Sherry Diedrich sherryd_at_mhccom.
com [phone] ext. 240
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MHC Software, Inc.

• Privately held, established in 1980
• Located in Burnsville, MN
• Lawson Business Partner for over 10 years
• Provides Document Express, a payment solution
  with document printing and distribution
  capabilities.
• Over 500 client installations
• 90 of client base is Lawson users

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Why Electronic Payments?

• Electronic payments are a smart business
  strategy.
• Save time and increase efficiency Direct
  deposit helps you eliminate the manual,
  labor-intensive process of disbursing checks and
  improves the efficiency of your payment
  operations.
• Reduce costs
• Fewer reissued checks
• Less accounting work - reconciliation is
  easier
• Lower production and administrative costs,
  reduced distribution and delivery expenses.
• Negotiate better terms with vendors
• Strengthen your cash management practices
• Control the deposit date
• Elimination of delivery delays
• Reduced costs can make up for the loss of
  check float
• Improve employee benefits
• On average, employees paid by check spend
  between eight to 24 hours each year going to the
  bank to deposit their paychecks.

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Payment Facts Provided by NACHA

• In 2002, an estimated 80 of all
  business-to-business payments were still made by
  check.
• The trend is moving more rapidly toward
  electronic payments
• The ACH Network grew by 14 in Fourth Quarter of
  2003. More than 2 billion transactions were
  conducted during the quarter, worth more then
  5.2 trillion.

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Payment Technologies Overview

• Checks
• Negotiable documents which include a MICR Line
  (Magnetic Ink Character Recognition).
• Positive Pay
• Check fraud prevention method offered by most
  banks where customer transmits a file of checks
  to the bank.
• Advent of positive pay plus allows payee name to
  be transmitted to the bank
• Ineffective if not transmitted on a regular basis
• ACH (Automated Clearing House)
• Electronic payments or credits completed in a
  standardized format that allow these payments to
  be made anywhere. Payroll direct deposits are
  done through ACH.
• Wires
• Electronic payments that are not revocable and
  can be done immediately (i.e. Real Estate
  Closings).
• Secure Seal next slide

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Secure Seal
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Electronic Payments

• Two primary types of electronic payments
• Direct Deposit money is electronically
  deposited or credited to a bank account.
• Payroll payments
• Income from investments, such as cds, annuities
  and mutual funds.
• Direct Payment money is electronically
  transferred out of
• a bank account to pay recurring bills.
• Mortgage payments
• Insurance premiums
• Utility payments

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Definitions - EFT
Electronic Funds Transfer is a generic name
for electronic payments
EFT

• International or Domestic
• Settlement time is 1-2 days
• ACH payments may be
• revoked for up to 30 days
• NACHA Standards
• Example Direct Deposit

ACH

• International or Domestic
• Usually require 5 days
• for settlement
• Non-revocable payments
• Example
• Real Estate Closings

Wires
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EFT Components - Steps

• 1. Format payment files into NACHA layout.
• 2. Transmit payment files to the bank - ODFI
  (Originating Depository Financial Institute)
• 3. Send electronic remittance advices via email,
  fax, or web posting.
• Additional Features
• 4. Provides reports
• 5. Accepts a return/confirmation file from the
  bank
• 6. File combining to reduce transaction costs.

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Format Payment Files to NACHA Standards

• Lawson Option One
• Run the Lawson AP160 job. This job creates an
  AP160 Tape File and an AP160 Remit File. The
  tape file is a data file for transmission to the
  bank. The file is in the NACHA CCD (Cash
  Concentration or Disbursement) Format. This
  payment format is designed for simple electronic
  payments. Lawson does not allow for any addenda
  records to be passed in the AP160 Tape File.
• The AP160 Tape file is transmitted to the bank
  either through an internal process or through
  Document Express.
• Lawson Option Two
• Run the Lawson AP161 job. This job creates an
  AP161 Payment File and an AP161 Remittance File.
  Neither of these files are in a NACHA format.
  Neither of these files contain addenda records.
• Our clients who use the AP161 jobs use Document
  Express to perform the following functions
• Format the file to NACHA requirements CCD,
  CCD, CTX, or PPD.
• If the client is using the CTX format than
  Document Express queries the Lawson Tables to
  grab payment related detail which Document
  Express formats into addenda records.
• Transmit the file to the bank
• Format the remittance file for delivery to
  the payee via print, fax or email.

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AP161 vs. AP155/AP160

• Run the AP161 Job
• AP161 job does not contain an invoice description
  field, but it does contain the PO Number and a 22
  character invoice.
• Pre-notification is not available for AP161, but
  is available with Document Express.
• Run the AP155/AP160 Job
• Will bring in the invoice description and a short
  invoice number or a long invoice number with no
  description.
• AP155 does not contain the PO number unless this
  is entered in the invoice description field.
• Vendor address information is not contained in
  the AP160 remittance file.
• AP160 Tape provides pre-notification capabilities.

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ACH - Automated Clearing House

• ACH Electronic payments or credits completed in
  standardized formats that allow these banking
  transactions to be sent anywhere in the United
  States.
• NACHA The National Automated Clearing House
  Association The trade association for the
  electronic payment associations, which establish
  the rules, industry standards, and procedures
  governing the exchange of commercial ACH Payments
  by depository financial institutions.
• ACH Network Funds transfer system governed by
  NACHA rules which provides the clearing of
  electronic entries for participating financial
  institutions.Virtually every major bank is
  affiliated with NACHA or works with a local
  clearinghouse.

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ACH 820 Types

• PPD (Prearranged Payment and Deposit)
• Designed for consumer accounts.
• Used for Payroll, Pensions, Electric Bill, etc.
• Allows for one Addenda Record
• Lawson produces ach files in the PPD format
  without any addenda records when the PR160 tape
  file is run. 
• CCD (Cash Concentration or Disbursement)
• Designed for simple electronic payments.
• Allows for one Addenda Record.
• When an addenda record is included this format is
  called the CCD plus.
• CTX (Corporate Trade Exchange)
• Designed for companies with trading partnership
  or used when sending payments to the government
  (I.e. child support payments).
• Allows for 9,999 addenda records per ACH payment.
• CBR (Corporate Cross-Border Payment)
• This Standard Entry Class Code is used for the
  transmission of corporate cross- border ACH
  credit and debit entries. Allows cross-border
  payments to be readily identified so that
  financial institutions may apply special handling
  requirements for cross-border payments, as
  desired.
• The CBR format accommodates detailed information
  unique to cross-border payments (e.g., foreign
  exchange conversion, origination and destination
  currency, country codes, etc.).

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File Transmission

• Payment Files are sent to the ODFI (Originating
  Depository Financial Institution)
• Modem
• FTP with file encryption
• Internet Transfer
• Transmission options are bank dependent and may
  also be dictated by internal IT preferences.
• MHC can provide any option.
• Receipt of bank confirmation file.
• File combining to save on transaction costs.

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ACH Automation
Document Express can provide additional
formatting (addenda records, headers, log in
information, etc.) or simply automate the
transmission process. Transmission options
include Modem, FTP or Internet Transfer
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The ACH Network

• Five Participants in ACH Process
• Originator company or individual
• ODFI
• ACH Operator (FED)
• RDFI
• Receiver

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Document Express Remittance Delivery
Printing
Fax

• Allows users to keep Lawson vanilla
• MHC provides continuing compatibility with Lawson
• Automatic interface to Lawson

Email
Web Posting
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Document Express e-mail
Email

• E-mail to individual recipients
• Encryption option for sensitive docs
• SMTP and MAPI compatibility
• Pulls current e-mail address from the Lawson
  Tables or a separate database.

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Document Express Faxing
Fax

• Send reformatted documents to Fax Server.
• Fax number comes from output file, Lawson Tables,
  or alternate database.

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Document Express Web Posting
Web Posting

• Post documents to a Web Site, restrict access to
  documents via username/ password, customized
  filters and search criteria.

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Payroll Considerations

• A recent American Payroll Association survey of
  700 U.S. Companies found 80 offer direct deposit
  of payroll however, only 45 of employees use
  direct deposit.
• Employee Adoption Strategies
• Educate new employees at training/orientation.
• Advertise on pay stubs, employee bulletin
  boards, and employee correspondence.
• Offer small incentives.
• Provide company savings information to
  employees.
• According to a recent study by the American
  Payroll Association, companies using direct
  deposit save an
• average of 86 cents per payment!
• Provide electronic remittance delivery options
  through
• Self Service or e-Pay (secure emailing of
  Direct Deposit Advices).

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Company Considerations Prior to Implementing EFT

• Business terms
• Payment methods
• Remittance information distribution
• Security of transactions
• Notice of change handling
• Vendor data collection
• Audit trails
• Accountability
• Process management

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International ACH Considerations

• Internationally not all countries have an
  ACH-like clearing system, and those with clearing
  systems have different settlement times and
  formats. So know the rules.
• Foreign Bank Accounts are no longer required.
• What currencies are you dealing with? Are
  multiple currencies used?
• Are ACH reversals allowed?
• Is pre-notification available?
• Be aware of that different bank holidays can
  affect the dates the money is deposited into
  foreign accounts.
• Make sure to understand the MICR Line or account
  information when setting up the Customer account
  information in the ERP system.
• Additional resources at http//www.frbservices.o
  rg/Retail/intfedach.html

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Costs
Check Costs ACH Costs
Average of .85 - 1.75 per check. Average of .05 per ACH.
Company prints 50,000 checks per year. Company generates 50,000 payments per year.
Average check costs 1.20 for a company that generates 50,000 payments the cost is 60,000.00 annually. Company does 5,000 payments per month - ROI in less than 6 months!
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The Future of Payment Technologies

• Steady increase in ACH business to business
  payments
• EDI becoming more standardized and mainstream
• Increased cost of check processing as electronic
  business grows
• Expanded ACH offerings including International
  ACH payments
• XML emerging to supplement EDI

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Questions
Sherry Diedrich Account Executive sherryd_at_mhccom.c
om [phone] Ext. 240