Denied Party Checks
What Are They and How Can They Be Integrated into Your Payment Process?

What Are Denied Party Checks?
Even in highly secure payment systems, payments can sometimes be blocked. This occurs when the originating, intermediary, or beneficiary bank freezes the payment because the beneficiary's name (or a part of it) appears on a blacklist of denied or restricted parties.

When a payment is blocked, recovering the funds can be challenging, potentially causing delays and violating agreed payment terms. Additionally, there is a reputational risk if your company's name becomes associated with a blacklisted entity.

Due to increasing global security concerns (such as political tensions, terrorism, and sanctions), regulatory scrutiny on corporate payment applications has intensified.

How Do Denied Party Checks Work?
Integrating a denied party screening process into payment workflows allows companies to detect and filter irregular transactions before they are submitted to the bank. While this sounds straightforward, several factors complicate the process:

• Multiple Lists: There are numerous denied party lists to consider; deciding which to use is essential.
• Handling Matches: If a match (or “hit”) occurs, should the payment be automatically canceled or flagged for manual review?
• ERP Integration: How will flagged payments be reported back to the originating system?
• Operational Impact: How will screening affect processing times and compliance with cut-off times?
• Different Payment Types: Should HR payments or direct debits be treated differently?
• Regulatory Requirements: Auditors may impose specific compliance standards that must be factored into the process.

When designing a denied party check system, these considerations must be addressed, all while maintaining or improving Straight Through Processing.

How a Payment Factory Can Help
An effective solution allows "clean payments" to pass through without additional intervention, while "hits" trigger an exception workflow. This workflow compares a ‘whitelist’ (approved parties) to the ‘blacklist’ (restricted parties), minimizing unnecessary post-processing.

The ideal place for denied party checks is in a central payment factory. For multinational companies with multiple systems (ERP, TMS, HR), centralizing payment processing ensures all payments are screened consistently, regardless of their origin.

Organizations with centralized payment processes have a significant advantage in maintaining compliance and operational efficiency.

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