When it comes to processing payments, how you pay is just as important as when you pay. Many companies are moving away from writing checks, which can take days to get to your Vendor, let alone to clear the bank. If you have to pay a Vendor by check, you may need to issue payments a full week before they are due, just to make sure the check is received on time, especially if you have negotiated payment discounts.

Establishing the most efficient and effective way to pay a Vendor is great, but sometimes Vendors need or want to dictate how they are paid. We end up with multiple ways to pay besides check, like credit card, wire transfer, bank transfer, electronic funds transfer (i.e. ACH Credit), and even sometimes cash (though hopefully those days are few and far between). The good news is, NAV can handle multiple forms of payment. Even better, starting with 2015, base NAV functionality includes the ability to create a file for electronic funds transfers.

Setting up Payment Methods is a simple task, requiring the following items for each method:

  • Code: A 10-digit alphanumeric code to identify the code for the term.
  • Description: Specify the description that users will see when looking at the Payment Method table.
  • Bal. Account Type: This field works directly with the Bal. Account No. at the time the Purchase Invoice posts. Select either G/L Account or Bank Account.
  • Bal. Account No.: Specify either the G/L Account or Bank Account to post the payment to at the time the Purchase Invoice posts. (Note: This is beneficial if you post invoices for charges that settle automatically to your bank account, like credit card payments.)
  • Direct Debit: If this box is checked, the system will calculate discounts on Purchase Credit Memos.
  • Description: Specify the description for the Code. Like the Code field, a style guide for descriptions should be created as it will be printed on documents where the Payment Terms are used.

To setup a Payment Method for Check or ACH Credit, all you need is a Code and Description. (Base NAV functionality now includes the ability to create a file to upload to the bank for both Positive Pay and ACH Credit payments. I’ll discuss the setup and functionality in a future blog.)

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Credit cards are becoming more and more common for Vendor payments, as companies look to extend their cash flow cycles and increase their rebates from credit card spending. While the technology for credit card payments from an ERP system is slowly becoming more advanced, most companies are still trying to ensure their 3-way match in payables and choose a more manual process. The process I used in my last role was pretty straight forward.

  1. Create the Credit Card Payment Method (and assign it to your Vendor).AP9
  2. Follow normal purchasing processes (create the purchase order, receive the items, post the invoice, run suggest vendor payments – filtered on the CREDITCARD Payment Method). Some Vendors may automatically charge your card at the time of order / shipment while others require a phone call or payment processing online.
  3. Review your credit card’s online statement for payment posting dates, update your Payment Journal appropriately, and post.When processing this Payment Journal, you will want to set the Bal. Account Type to G/L Account and assign an account designed as a clearing account (i.e. Credit Card Clearing).
  4. The final step in clearing out the entry is to process the credit card statement as an invoice. When entering the invoice lines for the items paid in NAV in step 3, enter the G/L Account associated with the Credit Card Clearing account and a good description (i.e. Payment to Vendor 1234).
  5. Post and pay this invoice as appropriate.

The use of cash and payments that automatically post to your bank account may create the need for a Payment Method to post payment at the time the Purchase Invoice posts. To do this, you will setup a Bal. Account Type and Bal. Account No. in the corresponding Payment Method. NAV will post both the Purchase Invoice and the payment to the account assigned here. This feature creates efficiency in your payables process when you know what date the payment should post. (Note: the system will post the payment with the same Posting Date as the Purchase Invoice.)

AP10Finally, base NAV functionality now includes the capability to create other types of file payments, such as wire transfers. For these, you’ll need to include the Pmt. Export Line Definition and the Bank Data Conversion Pmt. Type. (I’ll be discussing the setup and requirements for this functionality in a future blog.)

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If you had the chance to read through my last Accounts Payable blog (here), you know that Payment Terms are just as important as how you pay your Vendor. By looking at these two pieces of information, you can dictate how often you’ll need to run your payments. You may need or want to run some forms of payments more often than others, especially if you want to take advantage of Vendor discounts.

As I mentioned previously, issuing a check to a Vendor means having to consider how much time that check is going to take just to get to them. If a Vendor requires payment on a date that falls at the end of the week, you will likely have to cut the check earlier in the week, if not the week before. In my previous role, I would issue checks the week before they were due to ensure timely application by my Vendors.

You may want to consider paying Vendors some form of electronic payment more frequently. The benefit to these payment types is they settle at your Vendor’s bank in much less time. Most ACH’s will settle the next day, where most Wire Transfers will settle the same day, if sent to the bank before their cut-off time. Because of this, you may want to run your electronic payments a couple of times a week or in a couple of batches with different settlement dates.

Overall, NAV provides a great amount of flexibility for your company’s payment needs. Up next, I’ll discuss how Prepayments work for Vendors, plus stay tuned for my bonus blog with details on how to setup Positive Pay, ACH and Exporting Payment files.