Using In-transit Payments allows a more precise accounting by showing the payment across time by recording the date of our intent to pay funds and then confirming the date that a deposit happens at the vendor’s bank.
To start using In-Transit Payments in NetSuite, follow these steps to enable and setup the feature:
Enabling the In-Transit Payments Feature
Go to Setup > Company > Setup Tasks > Enable Features.
Click the Accounting
Under the Advanced Features heading, check the In-Transit Payments
Click Save.
Creating a Cash In-Transit (CIT) Clearing Account
Create a G/L account for Cash-In-Transit (CIT), a clearing account to hold amounts where payments have been made, but the money has not been received by the vendor’s bank.
This account must be the account type of “Other Current Liability.”
Setting Preferences for In-Transit Payments
In NetSuite OneWorld accounts, we can set a global preference to use one CIT account for in-transit payments in all subsidiaries, or each subsidiary can use a different CIT account.
An in-transit payment distinguishes that payment transactions occur across time. It first records the date of your intent to pay funds and then confirms the date that a deposit occurs at the bank. In-transit payments are also known as Two-Stage payments because the payment is tracked by two distinct phases:
First Stage: Recording the payment
Enter a payment record to track that a payment is being made. This record does not immediately post to a bank account in General Ledger (GL). First, it temporarily posts to an interim, non-posting Cash-in-Transit account. The Accounts Payable (A/P) account is debited only after the verification is received that the payment amount has actually been deposited by the vendor’s bank. The payment status remains as In-Transit until you receive verification from the vendor’s bank and actively mark the payment as Confirmed.
Enter a bill payment as normal to track that a payment is being made. This record does not post to a bank account but temporarily posts to an interim, non-posting Cash-in-Transit account.
The In-Transit box is checked on this bill, so when saved the transaction status is “IN TRANSIT” and the Confirm or Decline button appears at the top of the page.
The G/L impact of this transaction is non-posting. Accounts Payable account is debited only after you receive notice that the payment amount has been received and deposited by the vendor’s bank. The payment status remains as In-Transit until you receive verification and mark the payment as Confirmed status. A system journal is created which impacts the CIT and the Clearing Payments account that was created when the In-Transit feature was enabled.
In the next step, the bank processes the payment request.
Payments may be SWIFT/SEPA, EFT/FTP electronic payments, ACH/wired, or paper checks. The result of the request is one of the following:
The bank disburses funds to deposit the payment.
The bank rejects the payment request.
Second Phase: VERIFYING FUNDS WERE RECEIVED
When we download transactional data from your bank account or your bank sends you a statement or data with the processing results, import the transactions that detail disbursements and rejections. Reconcile matched General Ledger transactions to clear the actual bank payments against our in-transit payment records.
In-transit payments are resolved in one of two ways:
Successful disbursements that have been confirmed by the vendor’s bank are marked as confirmed. The CIT account amount is reversed and the AP account is debited and the bank account is credited.
Errors or rejected payments will be declined by the user. The vendor payment status is updated to Declined and the CIT account amount is reversed.
When you receive verification from your bank account statement data that the payment funds have been processed by both banks and received by the vendor, you mark the payment as Confirmed. Payments can be cleared in your bank ledger as soon as they are confirmed, which assists users in completing bank reconciliations.
When confirmed, the payment amount is reconciled by moving funds out of the interim Cash-In-Transit account and updating the true payment cash account and A/P account. The payment record is then updated with the actual bank accounts’ posting dates and the payment status is updated.
After saving, the status of the bill payment will show as Confirmed.
A system journal is created which reverses the impact of the CIT and Payment Clearing accounts from when the payment was created. The original transaction now becomes a posting transaction which reduces the actual cash account and A/P.
If the bank encounters errors during processing, you can decline the payment and the funds are removed from the Cash-In-Transit account. The process workflow shown below details the transactional processing and G/L impacts made at each phase.
