Magazine article Business Credit

The Future Is Here with Electronic Funds Transfer (EFT)

Magazine article Business Credit

The Future Is Here with Electronic Funds Transfer (EFT)

Article excerpt

Editor's note:

Numerous questions have been raised in reference to the recent procurement reform legislation, in particular those created by the Debt Collection Act of 1996. Included among the provisions was a new law that pertains to payments for vendors. This article explains the new law.

Q What does mandatory EFT for DoD vendors really mean?

A Payments made under a contract or purchase order, resulting from a solicitation issued on or after July 26, 1996, must be made by EFT. Recipients of federal payments who certify, in writing, that they do not have an account with a financial institution, will receive a waiver between July 26, 1996 and January 1, 1999. All payments made after January 1, 1999, are to be made by EFT. The Secretary of the Treasury may grant waivers from this requirement in certain circumstances.

Q How does my company benefit from EFT?

A Instead of receiving checks, your company will have payments deposited directly into its account at a financial institution of your choice on the payment due date. With EFT, you benefit from prompt funds availability on the due date, thus improving cash flow because of reduced mail float and the virtual elimination of lost payments. Many companies, regardless of size, have found EFT improves their financial operations.

In addition, this is a way to eliminate multiple physical lockboxes in favor of a single electronic lockbox, thus improving the visibility of cash flows.

Companies which begin using EFT now reap these benefits immediately, and such a proactive approach avoids difficulties and time when EFT becomes mandatory for all contracts.

Q How do the Prompt Payment Act provisions apply to the EFT process and how does it relate to EFF payments?

A Failure to provide the contractually required EFT information stops the payment process, even if all other payment data is available. Also, any possible interest under the Prompt Payment Act stops accruing. Therefore, we urge you to provide the EFT data as soon as possible. Payment will be suspended until the EFT payment information is provided.

These provisions are implemented via the interim FAR clauses 52-232.33 and 52-232.34. These same ideas will also be incorporated into the Office of Management and Budget Circular A-125, Prompt Payment. …

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