Electronic Funds Transfer

EFT Overview

Electronic Funds Transfer

EFT Overview

MHC Software, Inc.

Sherry Diedrich

sherryd@mhccom.com

(800) 588-3676 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. No delays accessing pay when employee is out sick or on vacation.

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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 ofa 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 DomesticSettlement time is 1-2 daysACH payments may be revoked for up to 30 daysNACHA StandardsExample: Direct Deposit

ACHInternational or Domestic Usually require 5 days for settlementNon-revocable paymentsExample: Real Estate Closings

Wires

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EFT Components - Steps

1. Format payment files into NACHAlayout.

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 reports5. Accepts a return/confirmation file from

the bank6. 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.).

Addenda Records Optional and they supply additional information about the Entry Detail Records or payment

related detail. The addenda record detail is machine-readable (EDI-Electronic Data Interchange). Each

addenda record can be up to 80 characters. If the addenda record exceeds 80 characters than the data will wrap to the next addenda record. This allows for 800,000 bytes of data for each ACH payment in the CTX format.

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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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Bank Compliant

NACHA

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

ACH Process

ACHelectronic filetransmitted

to bank

Payment FilePR 160

AP160/161

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The ACH Network

Five Participants in ACH Process:1. Originator company or individual

2. ODFI

3. ACH Operator (FED)

4. RDFI

5. Receiver

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Document Express Remittance Delivery

Allows users to keep Lawson vanilla

MHC provides continuing compatibility with Lawson

Automatic interface to Lawson

Document Format Document Security User Controls Reporting

Printing

Fax

Email

file import

Web Posting

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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 Format Document Security User Controls Reporting Email

file import

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Document Express Faxing

Send reformatted documents to Fax Server.

Fax number comes from output file, Lawson Tables, or alternate database.

Document Format Document Security User Controls Reporting

Fax

file import

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Document Express Web Posting

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

Document Format Document Security User Controls Reporting

file import

Web Posting

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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 throughSelf 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.org/Retail/intfedach.html

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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!

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

QuestionsQuestions

Sherry Diedrich

Account Executive

sherryd@mhccom.com

(800)588-3676 Ext. 240