Electronic Funds Transfer EFT Overview

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Electronic Funds TransferEFT Overview
MHC Software, Inc. Jenny Mattson jennym_at_mhccom.com
[phone] ext. 227 [phone] (DID)
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MHC Software, Inc.

• Privately held, established in 1980
• Located in Burnsville, MN
• Lawson, Oracle, Microsoft Business Solutions
  Business Partners.
• Provides Document Express, a payment solution
  with document printing and distribution
  capabilities.
• Also provides Image Express a document imaging
  and retrieval system.
• Over 600 client installations
• Local users include Piper Jaffray, Holiday
  Companies, Lifetouch, Famous Daves, Allina, and
  many more.

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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

• Trend Info - 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
• Approximately 14 billion payments were made in
  2005 growing the ACH Network by 16.2 over
  2004.

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Consumers Beat out Business in EFT

• Consumer Direct Deposit Payments Alone were
• 4.4 billion payments in 2005.
• Business Payments
• The total number of business-to-business ACH
  payments grew to 2.0 billion in 2005, up 11.3
  percent over 2004. Financial electronic data
  interchange - the electronic exchange of
  payment-related information or financial-related
  documents in standard formats between business
  partners on the ACH Network - grew by 19.8
  percent in 2005. In 2005 there were 915 million
  EDI-formatted remittance records accompanying ACH
  payments. The number of financial EDI payments in
  2005 was 255.6 million, up 20.3 percent over
  2004.

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Why is Business behind?

• Payment related detail
• New process checks are familiar
• How do I set it up?
• What is the benefit?
• Controls on the ACH Process
• Check Float the old argument Check 21 changes
  that.

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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.
• ACH payments include Direct Deposit of payroll,
  Social Security benefits and tax refunds, Direct
  Payment of consumer bills, e-checks,
  business-to-business payments, and Federal tax
  withholdings.
• Wires
• Electronic payments that are not revocable and
  can be done immediately (i.e. Real Estate
  Closings). Less exposure to risk than ACH for
  large dollar amount payments.
• https//www.nacha.org/OtherResources/riskmgmt/COR
  isk.pdfsearch22wires20vs.20ach22

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Secure Seal
Used by the US Treasury for all payments
signature contains the seal.
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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 60 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

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

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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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The ACH Network

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

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ACH Types

• PPD (Prearranged Payment and Deposit)
• Designed for consumer accounts.
• Used for Payroll, Pensions, Electric Bill, etc.
• Allows for one Addenda Record
• 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.
• Child Support payments are either CCD or CTX
• 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.).
• Addenda Records

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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.
• Automatic email notifications available to
  funding department (i.e. Treasury, Accounting,
  etc.)
• File combining to save on transaction costs.

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ACH Automation
Payment File
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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Document Express Remittance Delivery
Printing
Fax

• Allows users to keep Financial System vanilla
• MHC provides continuing compatibility with your
  Financials
• Automatic interface to Financial System

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 Vendor
  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, Vendor 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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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
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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
• Increased government requirements Child
  Support.

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Child Support Payments

• Employers provide 70 percent of all child support
  collections, states encourage employers to remit
  those payments electronically. In fact, Illinois,
  Indiana, Florida, and Massachusetts have passed
  legislation requiring specific employers (of a
  certain size or remitting a certain number of
  payments) to remit electronically.
• Ohio is mandating electronic payments this fall.
• States may also set up a Web-based payment
  service to attract the small- to medium-sized
  employer who otherwise would continue to remit by
  paper check.
• Options run through PR with Customized Process
  run interface to AP.

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Questions
Document Express Software Demonstration Electronic
Payments
Jenny Mattson [phone] Ext.
227 Jennym_at_mhccom.com