Safe Settlement Disbursements - NECS

Financial settlements in NECS will involve electronic transfers of cleared funds. Because settlement is fast and made with cleared funds, it is critical that disbursement payments end up in the right accounts. For disbursement payments to financial institutions, government agencies and even NECS, this is not a problem as the account details (BSB No. & Account No.) are known in advance and can be pre-set in NECS and verified before first use in a settlement.

However, when disbursement payments are to be made to the vendor or a nominee of the vendor whose identity and account details only become known during the transaction, special precautions are necessary to ensure the funds go to the right accounts. A slip keying in account details could mean that an unrelated party gets a sudden deposit of substantial cleared funds in their account. This risk has been identified as a major concern for many industry practitioners and a disincentive to use electronic conveyancing.

The way this risk is to be dealt with is that the Subscriber arranging the disbursement payment on behalf of their client is to have a number of options. They will be able to choose between:

• paying the funds into a pre-set Trust Account from which they can pay the recipient subsequently by cheque or electronic funds transfer
• setting up the recipient’s account details in advance and ensuring their correctness before using them in a settlement
• having the recipient’s financial institution confirm the account details prior to settlement.

The first of these options might suit when delayed receipt of the funds is not important. The second option might suit when the recipient is a regular client of the Subscriber and likely to be frequently receiving disbursement payments from NECS settlements.

The third option is the one likely to be used most often. The recipient will be required to contact their financial institution, be identified as the financial institution’s customer and advise the financial institution of the pending settlement. The financial institution will enter NECS and confirm the account details entered by the Subscriber so that at settlement the payment can be confidently made directly into the financial institution’s customer’s account. In the event that the receiving financial institution does not confirm their customer’s account details prior to settlement, the funds will be paid into a suspense account at the financial institution from where the intended recipient can claim them after being successfully identified by the financial institution as the account holder.

These arrangements will provide all users with the means for ensuring settlement disbursements end up in the right account and transacting parties with confidence that their monies won’t end up in someone else’s account for an unscrupulous person to make off with.

NECS newsletter Oct 09