How is the Pay as Paid Principle Enforced?

To adhere to the Pay as Paid principle of a Broker ledger, funds must only be released to an underwriter (carrier) or client after the corresponding funds have been received from the other party. This is required because the organization is acting as an intermediary between the two other parties. It is receiving funds from one party and then remitting these funds to the other party. For example, in a simple case, ignoring commission, it receives a premium from a client and then (and only then) pays this premium to one or more underwriters of the policy.

To achieve this, the 'credit element' of a business transaction needs to be withheld from payment until the associated 'debit element' is received. At which point, the credit element must be released for payment.

The status of each transaction is identified and controlled through each stage of its processing by a combination of the allocation marker and allocation code held on each transaction. These codes are set automatically by different system functions, for example by Ledger Import (LIM) or Account Allocations (ACA). Allocation Codes, if defined by the user, act as an extension of allocation markers to denote the particular stage of a Pay as Paid transaction.

Note: The allocation code is set to the code associated with an allocation action. The allocation action is triggered by a particular function. For example, the Import allocation code is triggered by Ledger Import (LIM) or Ledger Entry (LEN).

The Typical Pay as Paid Processing Stages

These processing stages use a premium as an example. The same processing stages apply in reverse to a claim.

Stage 1: Post the Premium

The transactions required to record the new premium are posted to Financials using Ledger Import (LIM).

Specific Pay as Paid Processing: The allocation marker is automatically set to Withheld on all of the credit transactions. The allocation code for the allocation action of Import is set on all of the transactions. Then, the allocation code for the allocation action of Releasing Collectable is set on the debit transactions.


Tx Ref	Account	Amount	Intra-Tx Link (Link Ref 2)	Allocation Marker	Allocation Action
ABC	Client	100 DR	1	Not Allocated uses the Agency/Broker Account Type on the transactions to determine whether or not it should withhold the credit transactions. It does not set the Allocation Marker on the credit transactions to Withheld if the account referenced on the linked debit transaction has an Agency/Broker Account Type of Nominal.	Releasing Collectable
ABC	Underwriter	90 CR	1	Withheld	uses the Agency/Broker Account Type on theImport
ABC	Commission	10 CR	1	Withheld	Import

Ledger Import

Stage 2: The Payment is Received

The client pays the premium and this is entered or imported as a cash receipt and posted to the client account.


Tx Ref	Account	Amount	Intra-Tx Link (Link Ref 2)	Allocation Marker	Allocation Action
CSH1	Bank	100 DR		Not Allocated
CSH1	Client	100 CR		Not Allocated

Stage 3: The Cash Receipt is Matched against the Premium Transaction

A) The cash receipt is matched against the outstanding premium on the client account using Account Allocations in the usual way.

Specific Pay as Paid Processing: The Allocation code for the allocation action of Allocation is set.


Tx Ref	Account	Amount	Intra-Tx Link (Link Ref 2)	Allocation Marker	Allocation Action
ABC	Client	100 DR	1	Matched	Allocation
CSH1	Client	100 CR		Matched	Allocation

B) The corresponding credit transaction(s) are released for payment. The linked transactions are identified by the unique combination of transaction reference and intra-transaction link reference.

Note: There are rules that determine which linked transactions are released. These rules are determined by the Agency/Broker Account Type option set on the account.

Specific Pay as Paid Processing: The withheld allocation marker is removed from the linked credit transaction to release it for payment. The Allocation code for the allocation action of Releasing Payable is set.


Tx Ref	Account	Amount	Intra-Tx Link (Link Ref 2)	Allocation Marker	Allocation Action
ABC	Underwriter	90 CR	1	Not Allocated	Releasing Payable

Note: If only part of the premium is paid, the original premium is split and the cash is allocated to the split transaction as part of the matching process. The corresponding credit (underwriter) transaction is split in the same proportion and only the relevant split credit transaction is released.

Stage 4: The Payment is Generated

The underwriter transaction for the premium is selected for payment and passed to Payment Run (PYR) for payment. The payment transaction is generated and automatically matched against the premium transaction being paid.

Specific Pay as Paid Processing: The Allocation code for the allocation action of Payment is set.

Note: A payment stamp can be assigned to the transactions selected for payment, before they are passed to Payment Run (PYR). If so, the same payment stamp is saved on the payment transaction that is generated thus linking the payment to the transactions being paid.


Tx Ref	Account	Amount	Intra-Tx Link (Link Ref 2)	Allocation Marker	Allocation Action
PAY1	Underwriter	90 DR	1	Paid	Payment
PAY1	Bank	90 CR		Paid	Payment