Financial settlement is one of the key components of the business process. This is the final step in completing the business transactions. In procure to pay cycle, the suppliers send the invoices to the customers after delivering the goods or rendering the services. Once the invoices are received, the accounts payables department of the customer validates the invoices and approves the payments. The payments made to the suppliers during the settlement process are generally dependent on the agreement entered into between the customers and suppliers for carrying on the business transactions. Payments are generally made to the original supplier providing the goods or services, however there can be specific arrangements made wherein the suppliers can specify a different party to be paid on their behalf. The payments made to other parties on behalf of the suppliers are termed as 3rd party payments.
3rd party payments help parties involved in business to set off their liabilities without directly paying them. This reduces the direct funds movements and transactions can be settled easily.
Some situations where payments are to be made to a 3rd Party
1)When supplier is having cash flow problems. They sell all their receivables to a 3rd Party to whom all dues are to be paid.
2)When supplier files for bankruptcy. All dues are paid to the Court or a 3rd Party collection agency.
For supporting 3rd party payments, Payables providing functionality to create Invoices with the provided remit to supplier details using Invoice Workbench, Recurring Invoices, Quick Invoices and Payables Open Interface Import. Also while making payment through Payment Workbench remit to account should be populated for selected remit to supplier and supplier site.
