How to write payment references and purpose descriptions that clear first time

Reference and purpose are two different things

Payers often treat the reference and the purpose as the same field. They do different jobs, and it helps to keep them apart.

• The reference is for the beneficiary. It tells them what the money is for in their own terms so they can match it in their ledger. An invoice number, a contract number or a customer account code are typical references.
• The purpose is for the banks. It tells every institution that handles the payment what kind of transaction this is, so they can judge whether it makes sense for the parties involved.

A reference such as "INV 20431" is perfect for the supplier's accounts team and tells a compliance analyst almost nothing. A purpose such as "Payment for packaging materials under purchase order 7781" tells the analyst what they need, and works as a reference too if space is short. When a payment form gives you only one field, write it so it serves both readers.

Why banks care about purpose

Every bank that processes a cross-border payment has legal obligations to understand the transactions it handles. Anti-money laundering rules require them to monitor payments against what they know about their customers. Sanctions rules require them to make sure no payment benefits a sanctioned person or supports a prohibited activity. Export controls and trade restrictions add more checks for certain goods and destinations.

The purpose field is often the only information an intermediary bank has about why the money is moving. It has no relationship with you. It does not know your business. It sees a name, an address, an amount, a currency, a route and a few words of description. If those words are vague, the analyst has to ask. If they suggest something that sits badly with the parties or the route, the analyst has to escalate.

A clear purpose answers the questions before they are asked. That is the single biggest thing a payer can do to keep payments moving.

What a good purpose looks like

A good purpose description is specific, factual and consistent with the rest of the payment. It usually answers three things: what is being paid for, under what arrangement, and with a document reference if there is one.

• Name the goods or services in plain terms. "Stainless steel fasteners" is better than "goods". "Monthly software licence" is better than "services".
• Name the underlying document. An invoice, purchase order, contract or agreement number lets anyone check the payment against paper.
• Use the language a bank analyst would understand. Internal project names and abbreviations mean nothing outside your company.
• Make sure it matches the parties. A payment described as freight charges should go to a logistics company, not to a law firm.
• Keep it truthful and complete. If the payment is a loan repayment to a related company, say so. Dressing it up as something else creates a much bigger problem later.

Good and bad examples

The examples below are illustrative. They show the difference between a description that invites a query and one that answers it.

Words to avoid on their own include payment, transfer, funds, services, goods, invoice, misc and test. They are not prohibited, but by themselves they give a reviewer nothing to work with. Words such as gift, donation, loan, investment and crypto are fine when accurate, but tend to draw attention, so support them with the document and context.

Regional purpose codes in general terms

Some countries require a standardised purpose code on incoming or outgoing international payments, in addition to free-text description. These codes are usually used by central banks to compile balance of payments statistics, and sometimes to enforce currency controls. The codes and the rules vary by country and change from time to time, so treat the following as general orientation.

• Several countries in the Gulf region and parts of Asia ask for a code from a national list that classifies the payment, such as trade in goods, services, salaries or family support.
• India uses purpose codes for cross-border payments, and the receiving bank may ask the beneficiary to confirm the purpose before crediting.
• Mainland China requires incoming foreign currency payments to be classified, and the beneficiary's bank checks the nature of the transaction against documents.
• ISO 20022 includes an external purpose code list, which allows a payment to carry a standard code alongside free text. As more banks adopt the standard, structured purpose data is becoming more common.

If you pay a country that needs a code and you do not supply one, the beneficiary's bank may hold the funds and contact the beneficiary, or return the payment. The beneficiary usually knows which code applies to them, so ask them when you first set up the payee.

Supporting documents

A purpose description works best when there is a document behind it. For most business payments that will be one of the following:

• A commercial invoice showing both parties, the goods or services, the amount and the currency.
• A purchase order or contract, for payments in advance or by milestone.
• A loan or shareholder agreement, for related-party funding.
• A payroll summary or engagement letter, for contractor and staff payments.
• Transport documents such as a bill of lading, where a bank asks about a shipment.

Keep the document consistent with the payment. If the invoice is for 48,000 US dollars and you pay 50,000, expect a question about the difference. If the invoice is addressed to your parent company and you pay from a subsidiary, explain the arrangement. Mismatches between the paperwork and the payment cause more queries than missing paperwork does.

Writing references your beneficiary can use

Remittance space is limited. Older SWIFT formats allowed four lines of 35 characters. SEPA allows 140 characters. Some domestic systems allow far fewer. Anything beyond the limit may be cut off, and some banks strip special characters.

• Put the most important identifier first, usually the invoice number.
• Use letters, numbers, spaces and simple punctuation. Avoid symbols such as ampersands, hashes and accented letters, which some systems reject or replace.
• If you are paying several invoices at once, list the numbers, or send a separate remittance advice by email and reference it in the payment.
• Use the reference format the beneficiary asks for. Large suppliers often have an automated matching system that looks for a customer number in a specific position.

A beneficiary who cannot match a payment may report it as unidentified, chase you for money you have already paid, or in some cases return it.

Keep it consistent across payments

Monitoring systems look at patterns. If you pay the same supplier every month for the same thing, describe it the same way each time. A sudden change in wording, amount or route stands out, and a reviewer may ask why.

When the nature of a relationship does change, such as a supplier becoming a distributor or a contractor becoming an employee, tell your payment provider before the payments change. That way the new pattern is expected and documented. It is much easier to explain a change in advance than to answer a query after the fact.

The guide to why international payments get held covers what happens when a description does draw a query.

Purpose wording for common payment types

Some kinds of payment come up again and again in business accounts, and each has its own pitfalls. The suggestions below are illustrative starting points to adapt to your own facts.

• Supplier invoices. Name the goods or service and the invoice number. For deposits, say it is a deposit and quote the purchase order, because no final invoice exists yet.
• Contractor fees. State the service, the period and the engagement, for example "Software development services, October, under contractor agreement 22". Avoid "salary" for someone who is not an employee, since that implies a different relationship.
• Intercompany transfers. Say which group companies are involved and why: funding under a loan agreement, settlement of a management charge, or payment of a dividend approved by the board. Group flows that look like round sums with no explanation attract attention.
• Refunds. Refer to the original transaction and the reason, such as "Refund of overpayment on invoice 3092". A refund to someone other than the original payer needs an explanation.
• Professional fees. Name the firm's service, such as audit, legal or tax advice, and the matter or engagement reference.
• Rent and leases. State the property or equipment and the period covered.

For each type, a useful test is whether a stranger reading only the purpose field could tell what the money was for and who it should go to. If they could not, add detail until they could.

General information

This article is general information and is not legal, tax or regulatory advice. Purpose code requirements differ by country and change over time. For how we approach purpose and documents on every wire, see the CCYFX compliance page.