Overview

From time to time, vendors do not cash their checks. This was written to help a client determine how to handle these returned payments and the differences of handling them in Dynamics GP with and without MEEP.

Uncashed Payments and Vendor Doesn’t Respond

If your service provider cannot get in touch with the vendor to clear the payment within a certain amount of time (varies by service provider), the payment amount will be returned with a notification to your AP department of the vendor, payment date, payment reference (i.e. check number) and payment amount.

As you may know, states require diligence in getting your payments to your vendors. Most have passed “Unclaimed Property” laws. This process is called escheatment which is defined as follows:

  • When money lies dormant in a deposit account or appears to be abandoned, the bank or other organizations with which the money was deposited aren’t necessarily allowed to just keep that money for their own use. After a period of time, they’re required to turn it over to the state. This is called escheatment.

From the Journal of Accountancy:

  • WITH MORE STATES CONDUCTING AUDITS, CPAs need to encourage companies to pay greater attention to their unclaimed property liability. This includes both reporting unclaimed assets to the right state and making sure the company properly reflects the liability on its balance sheet.
  • UNCLAIMED PROPERTY HOLDERS MUST exhaust all options to locate the property’s rightful owner before determining to which state they should report the assets. Companies should have policies and procedures in place to track potential unclaimed property and comply with the applicable state reporting requirements.

For more information, see Unclaimed Property.

AP Processes for Unclaimed Payments When You are Paying them Yourself

In the AP department, the most common reasons that unclaimed properly can occur is from uncashed checks or returned ACHs. Most accounting departments will find out about these when they do their bank reconciliation. There will be an outstanding check in Dynamics GP that does not show cleared by the bank.

Seeing the outstanding check is the normal trigger for contacting the vendor to find out if their contact information has changed and trying to get them their payment.

How to Track Returned Payments When You are Sending Payments Thru a Service Provider (Outsourcing)

The difference when you have a service provider pay on your behalf is that the payments all clear the bank the day they are funded. So you will never see a payment that didn’t clear. The service provider will be the one that notices on their bank statement if something doesn’t clear.

The service provider will repeatedly attempt to contact the vendor, however, after a certain number of attempts and time elapses, they will return the payment amount to you with identifying information. This is the key difference. Instead of seeing the outstanding checks on your bank statement, you will use these notifications to trigger your contact to the vendor.

In addition to contacting the vendor, the question remains: how should these returned payments be tracked in the accounting system? These amounts should be booked by JE to a GL account set aside for “Unclaimed Funds”. The JE should reference back to the original vendor and transaction that was returned.

You should then contact the vendor and try to resolve it. Once you know what the vendor wants to do, you can void and resubmit payment and JE the money for that payment from “Unclaimed Funds” back into cash with a reference to the resolution.

You will need to maintain a ledger of transactions in the “Unclaimed Funds” GL account so you can identify transactions that have never been actually sent to your vendors. This ledger will serve 2 purposes:

  1. Continuing to make a good faith effort to communicate with your vendors.
  1. Once the transactions pass a certain state-specific time period (anywhere from 1-5 years), you will need to submit this money to the state. When you are ready to do that, you will transfer the liability to cash to clear it from your “Unclaimed Funds” account and pay the state to clear it out of cash.

References

These articles have additional information and advice for how to handle these issues.
Weekly Dynamic: Escheat/Unclaimed Property in Dynamics GP – DynamicAccounting.net
Escheatment and unclaimed property procedures in Microsoft Dynamics GP | RSM Technology Blog

Last modified: Aug 04, 2021

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