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Electronic Funds Transfer EFT Overview


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Title: Electronic Funds Transfer EFT Overview

Electronic Funds TransferEFT Overview
MHC Software, Inc. Sherry Diedrich sherryd_at_mhccom.
com (800) 588-3676 ext. 240
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
  • Over 500 client installations
  • 90 of client base is Lawson users

Why Electronic Payments?
  • Electronic payments are a smart business
  • 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
  • Reduce costs
  • Fewer reissued checks
  • Less accounting work - reconciliation is
  • 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.

Payment Facts Provided by NACHA
  • In 2002, an estimated 80 of all
    business-to-business payments were still made by
  • 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.

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
  • Secure Seal next slide

Secure Seal
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

Definitions - EFT
Electronic Funds Transfer is a generic name
for electronic payments
  • International or Domestic
  • Settlement time is 1-2 days
  • ACH payments may be
  • revoked for up to 30 days
  • NACHA Standards
  • Example Direct Deposit

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

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
  • 6. File combining to reduce transaction costs.

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.

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
  • 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.

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
  • 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

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
  • The CBR format accommodates detailed information
    unique to cross-border payments (e.g., foreign
    exchange conversion, origination and destination
    currency, country codes, etc.).

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.

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

Document Express Remittance Delivery
  • Allows users to keep Lawson vanilla
  • MHC provides continuing compatibility with Lawson
  • Automatic interface to Lawson

Web Posting
Document Express e-mail
  • 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.

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

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

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
  • 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
  • Self Service or e-Pay (secure emailing of
    Direct Deposit Advices).

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

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

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!
The Future of Payment Technologies
  • Steady increase in ACH business to business
  • 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

Sherry Diedrich Account Executive sherryd_at_mhccom.c
om (800)588-3676 Ext. 240
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