February 21st, 2017

Answering the Challenge of Decoupled Payments

Any company managing payments and especially electronic remittances in the world today is likely dealing with the dilemma of decoupled payments. This is when a payment provider conducts two transactions to facilitate payment between payer and payee, versus enabling one direct payment between the two parties.

While the format of decoupled payments has been widely adopted for its beneficial attributes, it can create a great deal of difficulty for accounts receivable departments and companies depending on accurate cash figures.

What is the “decoupled payments” model?

Most major payment providers, including banks, PayPal and even Western Union, use the decoupled model of payments. This two-transaction system begins with the payer initiating a payment through the provider. This constitutes the first transaction, in which the payer submits payment to the provider. The payment provider then initiates the second transaction, in which they submit the sum of the payer’s remittance to the payee. The payment is “decoupled” because two transactions have occurred, which then have to be matched in a company’s (the payee’s) accounting system. A common form of this two-transaction method is a bank’s online bill payment system.

Why are decoupled payments used?

Decoupled payment methods provide significant flexibility for payment providers, and even for payees. Providers can use different systems for the two transactions, vary timing to manage risk or aggregate one side of the transaction but not the other. For companies issuing invoices, offering multiple methods of payment can improve their chances of being paid on time. While some customers may prefer to mail a cheque, more and more invoices are paid electronically. Regular customers can even set up automatic payments of monthly bills, which is great for companies who can then rely on those payments being made on schedule.

The downside?

For all the benefits, however, decoupled payments can also create a lot of work for organisations lacking integration between electronic payments and their accounting systems. There are multiple steps involved in trying to resolve a decoupled remit:

  1. Receive the payment notification
  2. Create the payment “shell” and manually apply the cash payment on the account in the ERP system
  3. Monitor for any incoming remittance records via post or e-mail
  4. Review, revise, reformat and file remittance records
  5. Post the remittance document to the ERP or key data in manually
  6. Apply exceptions within the ERP system

Unfortunately for global companies there are a number of negative implications of manually decoupling remittances. The accounts receivable department may receive a dozen alerts that payees have scheduled remittances and two dozen alerts that payments have credited to the organisation’s bank account—but it’s unlikely that the alerts will easily match the payments to the correct remittance.

Matching payments to invoices is often a manual process, which can be labour-intensive and error-prone. Mistakes can be extremely difficult to catch and correct in these systems. Further complicating the process, employees must often access different software portals and emails to get all remittance information, and the information recorded and organisation methods may not align easily.

The role of automated remittance software

Automated customer remittance software can solve the problems of decoupled payments by automatically matching payments with remittances and seamlessly updating accounts in an organisation’s ERP system. These solutions offer easy integration of EDI, Excel and PDF files, remittance emails and data lifted directly from AP portals.

The result is quicker, smoother, more reliable remittance management, with the vast majority of payments being correctly matched and resolved automatically within the system. This leaves valuable accounting staff free to work on exceptions or follow-up on specific accounts.

Advanced remittance management software allows users to create specific algorithms according to specific customer requirements or set up unique deduction rules by customer. Such solutions can store images of remittances and keep all remittance information in one centralised place, making it easy for staff to access and analyse account data.

In addition to streamlining the entire invoice-to-cash process, automated remittance software offers greater control, visibility and traceability of the remittance management process, in turn providing a company with better confidence in their cash situation.

If you’re struggling to manage decoupled payments or would like to discuss how automated remittance processing software could benefit your business, get in touch with our team on +353 61 338 400 (international) or +1 818 292 9015 (North America), or email info@cashbook.com.

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