Narrowing the divide between payments and remittance processing

The cost of inaction, the value of emerging solutions

Electronic payments by businesses and consumers are increasing. But 85% of electronic payment and remittances require some level of manual intervention for receivables posting and reconcilement.[1]

The good news is that solutions to automate and enhance receivables posting and reconciliation exist today and are improving with technology advancements. These solutions are helping billers not only to create a pathway to receivables straight-through processing (STP) across a changing payment mix but also to support the emerging faster payment environment.

Payer practices and other challenges


Approximately 71% of remittance information related to electronic payments travels separately from the payments, which complicates posting and reconciliation.[2] Payers may omit identifying information, or all required data may be included but in the wrong format or field for a biller’s systems. Yet payer behavior is not necessarily controllable or the best impetus for organizations seeking the nirvana of integrated payments and remittance processing. In addition to this there are other challenges which plague billers, such as legacy systems that require different formats and validation criteria.

The net effect is more manual processing, more exception handling, and more staff—a dynamic that grows increasingly complicated as companies grow their businesses and receivables volume. This causes a range of issues such as higher costs, delayed posting and less efficient working capital that could have been avoided if collected funds had only been applied faster.

Faster payments: the imperative of speed

The stakes are increasing for accelerating receivables posting with the development of faster payments systems. Same-Day ACH, for example, will give clients the option to initiate and settle payments on the same day as opposed to next-day or two-day settlement. This could apply to business-to-consumer and business-to-business payments, consumer-to-business online payments, accelerated merchant card settlement and a range of other services provided the payment is under $25,000.

As a result corporate billers will need to quickly identify and post incoming payments so that payers taking advantage of same-day payments do not receive late notifications, fees, or disruptions that create customer ill will and extra work to undo. Another way to achieve same-day value is through back-valuing payments, which is today a common practice. Likewise, billers will need the capability to post ACH intraday as of September 2016 and to expedite payment returns.

Pathways to STP for receivables

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J.P. Morgan eRemittance

A growing number of solutions are bridging the payer-payee remittance divide to enable seamless receivables processing. Important strides have been made using technology, validation criteria, and artificial intelligence in order to interpret incoming payments and seamlessly process payments. The most effective solutions target the opportunities for transformation within the end-to-end receivables process at whatever junctures they occur. 

Generally the best practice involves focusing on the most controllable elements with the biggest impact. This could mean leveraging payers to provide  data in the proper format and field location for identification, capturing electronic remittance in a central email warehouse for data enhancement and association with payments, or a range of other tools and techniques—used individually or in combination. 

Focusing on what you can control enables various methods to achieve an STP result. Payers can transact electronically, despite the impact of remittance limitations for billers, across a growing number of channels (including mobile) and choose the best payment method for them depending on a number of factors. In parallel, payees can harness a growing number of effective solutions and technological developments to achieve STP for posting and reconciliation. We’ll review some of those solutions and their potential impact.

Associating remittance information with payments

In one survey 88% of respondents say that they receive remittance data from trading partners as a document via email, fax, or paper with details requiring re-keying.[3]Advancements in artificial intelligence (AI) are powering solutions for reintegrating payments and information for seamless receivables processing. In particular the trend is towards AI-enabled learning tools that identify recurring problems and remediate them—by fixing errors, adding missing detail, or enhancing data—to improve STP rates over time.

One such tool is optical character recognition (CR) or intelligent image CR software. Today’s software can identify full words, determine which elements are important and then map them to a file for ingesting the native format of a legacy system. This includes a learning process with continual adaptation for improvement. 

Remittance tools helping billers today include:

  • Electronic Remittance Association. Technology is enabling next generation solutions for electronic remittance association, where invoices can go to an e-mail warehouse to which billers or solutions providers can facilitate the integration of invoice level detail with payments. Comprehensive solutions can aggregate data across a range of payment methods including check, wire, and ACH.
  • Validation Files.  Consumer billers like utility companies with millions of customers typically have different systems across different states, and these systems often don’t talk to each other. AI can understand consumer behavior and correct a problem once (e.g., missing customer account number). This enters a go-to file, commonly called a go file, for future use to remediate the problem. Combined with rules-based payment criteria AI facilitates data enhancement and integration with a biller’s ERP system.
  • Enrollment and Biller Directories. Supporting enrollment and maintaining directories for biller-based information is a foundational tool that helps achieve higher electronic ratios and STP percentages.

Other mechanisms enable receivers to protect their bank account numbers by distributing associated Virtual Reference Numbers (VRNs) for payers to use. Companies also are using VRNs to identify recurring wire and ACH payments from counterparties to enable STP. VRNs make it easier for a company or financial entity to reconcile payments and remittances by associating a specific identifier (rather than a random one) to a counterparty. This tool has long been in use outside the U.S. and has met success as a tool in the U.S. for reconciliation for incoming payment and remittance data.

Formatting payments so information travels end-to-end

For B2B payments some billers require originators to follow a required format, such as CCD+ or Corporate Trading Exchange (CTX) for ACH corporate payments. These are appropriate for counterparties with higher payment volumes that can invest in these formats.  Increased adoption of ISO 20022 and XML-based financial messaging standards allows for more flexibility in format structure.  The market expects that ISO 20022 standards adoption will increase the use of electronic payments but also of STP receivables posting. Adoption success is contingent on using all necessary formatting fields.

Towards this end, the Remittance Coalition, a subset of the Fed Payment improvement directive, is working on using ISO20022 as a universal payment format for ACH and wires. The effort aims to improve the payment and remittance experience in a number of ways including building a payment directory powered by electronic payment identification.  This will allow a vendor or payee via a verified registration process to provide any information, such as address, billing details, payment type (e.g., ACH, card, or Money Service Provider) along with remittance information required for STP payment. 

This is part of a multi-pronged push underway in the U.S. to improve and speed payment processing in a secure manner and accelerate the migration to electronic payments. The shift has occurred in many countries around the world but not to the same degree in the U.S., ironically due to the obstacles to ensuring STP between the originator and the receiver.

Consolidated Edison

A simple solution that created a pathway to increased STP.

For both large and small payers some billers have great success in providing formatting guidance to counterparties. A formatting guide instructs originators on how to adhere to billing requirements and what information to include with payment. However, for B2B payments it is generally more effective to focus on large payers and work with them to modify their behavior in a targeted manner.

In one case Consolidated Edison worked with a major university to have the university provide identifiers for each property in their payment remittance records. This allowed Consolidated Edison to identify which of the university’s hundreds of properties around New York City was remitting payment—a simple solution that created a pathway to increased STP.

Narrowing the divide: it's within reach

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Not only are solutions helping billers to solve today’s receivables problems, but they also are readying organizations for impending market changes that heighten the urgency of attaining STP.

Despite the persistent challenges of achieving receivables STP, a growing number of increasingly effective options are available. They target opportunities for transformation within the end-to-end receivables process. Not only are solutions helping billers to solve today’s receivables problems, but they also are readying organizations for impending market changes that heighten the urgency of attaining STP. Companies will continue to invest in solutions that lead to concurrent electronic transformation and success in remittance identification in order to achieve their goals.

[1] J.P. Morgan interpretation of the 2013 Federal Reserve Payments Study

[2] NACHA Remittance Coalition

[3] 2012 Survey of Business Practitioners by the Remittance Coalition, Prepared by the Federal Reserve Banks of Minneapolis and Chicago


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