Back-business-dated transactions
Back-business-dated transactions are financial transactions that have a business date earlier than the actual transaction date. Back business-dating a transaction ensures that financial statements and records are precise and aligned with actual economic events, maintaining the integrity and accuracy of financial reporting. It is crucial for compliance with accounting standards and regulations, providing a true and fair view of an organization's financial position and is commonly used for error correction, compensation for payment delays, and regulatory compliance.
Similarly, transaction back value dating is also essential for ensuring the accuracy of accounts in banking systems, protecting banks from fraud and errors, ensuring customers are neither overcharged nor underpaid, and maintaining the integrity of the banking system.
Reasons and scenarios for backdating business transactions
| Reason | Scenario | Example |
|---|---|---|
| Error correction | If a bank makes a mistake in processing a payment, it might backdate the funds to the correct date. For instance, if a bank credits a customer's account with USD 100 on the 1st of the month, but the payment was actually made on the 15th of the previous month, the bank might backdate the funds to the 15th of the previous month to ensure the customer's account balance is accurate. | On 15th August, a bank mistakenly debits USD 100.00 from a customer's account. The bank realizes the mistake on 16th August and backdates the correction to 31st July. This results in the customer's balance on 31st July being USD 100.00 higher than it should have been. |
| Compensation for payment delays | If a bank takes two weeks to process a payment, it might backdate the funds to the original payment date. This helps compensate the customer for the interest they would have earned if the funds had been available sooner. | A client is issued a refund of USD 450.00 on 30th May. However, it takes 7 days for the bank to process the refund, which is completed on 7th June with a value date of 30th May. |
| Regulatory compliance | There are cases where banks are required by law to backdate funds. For instance, in the United States, banks must backdate funds to the correct date if they make an error in processing a payment. This ensures customers are neither overcharged nor underpaid. A payment made or received after the agreed settlement date can significantly impact the account balance, often resulting in delay-interest that might need to be paid or claimed. | On 1st August, a bank makes a significant error with a client's payment. To compensate, the bank offers USD 150.00 on 15th September, backdated to 1st August. The compensation is posted on 15th September with a value date of 1st August. |
About value dates
A value date is the date on which the value of a financial transaction becomes effective. It determines when the funds involved in the transaction are valid for interest accrual purposes. The value date is important for adjusting interest calculations and ensuring accurate financial reporting.
Effects of back-valued transactions on account balances
The value dated balance is adjusted to reflect back-valued funds. This means the balance is higher if credited funds are back-valued and lower if debited funds are back-valued, as the interest earned on the account might be adjusted. This process is closely tied to balance history developments and the management of the bank's close-of-business process. The effect on Pismo balances is as follows.
| Balance type | Impact |
|---|---|
| Ledger balance | The ledger balance reflects all financial operations in an account. It is calculated by adding the book balance for today's business date to the uncleared funds. When transactions are back-valued, the ledger balance is adjusted solely for the current business date. |
| Available balance | The available balance is the amount of money immediately accessible to the account holder. This is the actual balance used to authorize transactions as they occur. When a transaction is back-valued, the available balance is adjusted online only for the current business date. |
| Book balance | The book balance is the total amount of money that has been cleared and settled into the account, including any held funds. When a transaction is back-valued, the book balance is adjusted online only for the current business date. |
| Value-dated balance | Back-valued transactions impact the account's value-dated balance from the past value date. Therefore, balances from that point onward must be recalculated to reflect the updated value-dated balance. During this period, balance events need to be re-emitted to indicate adjustments or corrections. |
How back-business-date transactions work
The Pismo platform allows you to send payments to a past date by using the business_date and payment_datetime fields in Post payment and Post multi-leg payment. This feature ensures that transactions missing the cycle end are processed as though they occurred before the cycle ended, maintaining accurate balance history. The business_date field specifies the balance history cycle in which a payment is recorded, while the payment_datetime field enables you to backdate or postdate payments.
Things to know
business_datecan only represent the current, the next, or the previous business day for performance and compliance reasons.- You must send
business_datealong with thepayment_datetimefield, and the latter must be before thebusiness_date.- Backdating earmark creations is not supported; however, you can execute a valid (non-expired) earmark using a back-business-dated payment. Note that the earmark creation date must be earlier than or equal to
business_date.business_dateearlier than the previous work day (D-1) is not allowed.
Here is a detailed illustration of how back-business-dating works.
Figure 1: Back-business-dated transaction workflow
Here is what the preceding diagram illustrates:
- You send a new
business_dateto Pismo, which verifies if it's a backdated business payment. - Pismo determines if the specified date is either the current date or before the previous work day (D-1).
- Pismo confirms if it's a back-value-dated payment and is before your
business_date. If so, update the transaction's business date to the value received. - Pismo updates all balances (value-dated) from the payment date until the payment business date.
- Finally, Pismo checks if the
business_dateis before the current business date. If so, it updates all balances of newer business dates; otherwise, the process completes.
Updated about 14 hours ago