What is Exception Item Remittance Processing Costing You?
Despite the electronification of remittance processing, the cost to process an exception item continues to be a challenge in the payments industry.
It’s easy to believe that with declining check volumes exceptions requiring costly manual intervention to resolve have been reduced and with it the costs associated with exception item processing.
There is no question that since 2003 with the implementation of Check 21 that allowed banks and payment providers to use substitute documents or images for checks, payment processing has become more efficient.
However, exception items still require manual processing that involves checking the business rules in place with the FI for how to process the item.
On the plus side, the focus on faster, more accurate transaction processing is a real possibility for companies that need to reduce processing costs.
The Costs Can Be Significant
The cost of exception item processing within the electronic lockbox processing environment can be a significant barrier that cuts into the otherwise smooth and automated processing of scanned images.
Processing costs most often lurk whenever manual intervention is required to post an item whether due to manual exception handling, manual approvals, manual routing or other manual intervention required to ultimately post an item.
(Remittance exceptions include errors in payment amount, incorrect invoice numbers, over-under payments and many more. Check exceptions include invalid account IDs, insufficient funds, and missing signatures to name a few.)
According to a 2012 study conducted by NACHA’s Electronic Payments Association and the Council for Electronic Billing and Payment (CEBP), bill payment exceptions across several payment channels cost the payments industry $720 million per year of $4.42 billion in total annual payments. The same study found that the payments channel with the highest exception rates was for lockbox checks with a weighted percentage of 7.79 percent of all payment channels.1
Depending on how the processing function – whether in-house or through a third party — is set up, exception items can require additional personnel or time to process the item (and labor costs are rising), impact overall customer experience and delay collections which effects cash position.
Understanding how this reality negatively impacts the payments industry, The Remittance Coalition, formed by the Federal Reserve Bank (FRB) of Minneapolis, is an industry initiative founded to increase the efficiency of how corporate payments are made and reconciled of B2B payments to promote electronic business-to-business payments and electronic remittance data exchanges.
Their studies recently found that while more than 90 percent of company respondents desire to increase their use of electronic payments, 65 percent still take payments mostly by check…and, more check processing means more exception items.
The RC will promote “more unified standards, processes and common automated tools that support: (1) Using more electronic payments for B2B transactions, and (2) Originating and delivering electronic remittance data that can be associated easily with the payment.”2
Improve Operational Efficiency
Banks and payment providers have responded to the challenge of processing exceptions by developing software that can provide same-day resolution for recurring exceptions using robust Web-based tools designed to eliminate manual intervention.
Whether processing remittances in-house or outsourcing, the goal is to achieve error-free same-day processing of checks (and other payment methods) by maximizing conversion to electronic processing.
Some benefits and features of remittance services that can help companies improve operational efficiency, reduce costs and improve funds availability include:
- Visibility into remittance workflow provides control of the process
- Nationwide lockbox facilities to reduce mail float
- Advanced online image archive and retrieval reduces posting lags
- OCR scanning reduces data entry errors
- Clear client correspondence rules in place for faster item resolution
- Receivables management hubs – Integrate receivables with aggregated incoming payments and remittance details, accelerate cash through a uniform data stream, access payment trend analysis, and more.
- Utilize intuitive databases for customer profiles, lookups/research to resolve disputes
- Apply settings to identify special handling by routing numbers, account numbers and other data
- Enhanced image exchange – remove item background images while retaining critical data such as legal amount, payee and signature.
Remittance payment providers can help companies drive automation at every stage of the remittance workflow which will necessarily result in greater operational efficiencies.