Currency transaction code: who sets it and what errors delay payments

The bank marks every payment a company makes to a non-resident, and every incoming payment from one, with a currency transaction code. Using the code, the bank assigns the money to the right contract and knows which documents to expect next. A coding error rarely leads to a fine by itself. But it sets off a chain: a query from the bank, a delayed payment, discrepancies in the contract records. Let’s look at how the codes work and where people trip up on them.

What the code is and where it comes from

The currency transaction type code is five digits that the bank uses to indicate the nature of a transaction. The full list of codes is given in an annex to Bank of Russia Instruction No. 181-I.

From the codes, the bank and the currency control authorities see the company’s overall picture: which payments are for goods, which for services, which are loans, which are advance payments and which are payments on delivery. The code determines which obligation under the contract the bank assigns the money to and which supporting documents it will later expect from you.

How the code is structured

The first two digits indicate the group of transactions. There are separate groups for settlements on exports of goods, on imports of goods, on works and services, on loans and credits, on securities, and for other transactions. The remaining digits specify the type of transaction within the group: for example, whether it is an advance payment or payment after delivery.

An example from the list. Payment for imported goods that have already been brought in and an advance payment for goods that are yet to be imported are different codes: 11100 and 11200. Exports of goods have a similar pair: 10100 and 10200. The list is amended from time to time, so before a payment the code is checked against the current version, not against an old template.

Where the code is stated

This depends on the payment currency and on which way the money is moving.

• Payment in foreign currency. The company submits documents on the transaction to the bank. From them, the bank determines the code and prepares the currency transaction report. Your task is to make sure the documents give an unambiguous picture.
• Payment to a non-resident in roubles. The code is placed in the payment purpose, in curly brackets before the text, in the format {VO11100}. Without the code, the bank will generally not process such a payment.
• Incoming foreign currency. The bank will determine the code from the documents you submit for the amount received. Until they are provided, the non-resident’s money stays in the transit currency account and does not reach the current currency account.

An example of a rouble payment. A company pays a supplier from Kazakhstan an advance in roubles for equipment that has not yet been shipped. The payment purpose starts with the code for an advance payment for imported goods, followed by the contract number and date, the invoice number and what is being paid for. If the same supplier has already shipped the goods and the company is paying the balance, the code will be different, even though the beneficiary and the contract are the same.

Even when the bank determines the code, the company is responsible for the accuracy of the documents. If the invoice says one thing and something else is actually being paid for, the code error will be the least of your problems.

Where mistakes happen most often

1. Advance or post-payment. Under the contract, payment is due after delivery, but the goods have not been imported yet and the company is already paying. In substance this is an advance, and the code must be an advance code. The reverse also happens.
2. Goods and services in one payment. Equipment with installation, goods with door-to-door delivery. If everything is on one line of the invoice, it is hard for the bank to choose a code. It is better if the contract and the invoice separate the cost of the goods and of the services.
3. Return of an advance. When a supplier returns a prepayment, this is a separate type of transaction, not a new export.
4. The wrong contract. There are several contracts with one supplier, and the payment was linked to the wrong number. In the records, one contract is overpaid and the other is unpaid.
5. An old template. The payment instruction was once made from a template, and the list has changed since then.
6. Settlements through an agent. When a payment agent executes the payment under the contract, you settle with the agent under the agency agreement. Whether your payment to the agent needs a code, and which one, depends on whether the agent is a resident or a non-resident and in what currency you pay it. This is decided before the payment together with the currency control officer.

What a wrong code can lead to

Most often, the consequences are these: the bank requests explanations or corrected documents, and the payment waits. This is unpleasant if the supplier is expecting the money by the shipment date.

It is worse when the error is not corrected and drags on for months. Discrepancies pile up in the contract records: advances not closed by deliveries, deliveries not closed by payments. The deadlines for submitting supporting documents pass. Then the issue is no longer the code but a breach of the procedure for submitting documents, which is punishable by fines under the Russian Code of Administrative Offenses (KoAP). More in the article on what currency control fines are imposed for.

How to check the code before paying

• Find the payment clause in the contract: advance, post-payment, installments.
• Check the invoice against the contract: subject, amount, currency, beneficiary.
• Check whether the contract is registered with the bank, and state its unique contract number.
• If the payment covers both goods and services, ask the supplier to separate them in the invoice.
• If in doubt, ask the currency control officer before sending the payment instruction. An answer before the payment costs less than corrections afterwards.

When the payment goes through an agent from our pool, we put the package together before the roubles are debited: the agency agreement, the payment order with the rate and fee, the invoice, and after execution, the transfer confirmation and the agent’s report. We check the payment purpose and the link to your contract in advance, so that it is easier for the currency control officer to match the documents. More on the invoice payments and currency control pages. This is a general overview, not advice. We will give you an answer on your deal after reviewing the documents and before the roubles are transferred.