Chapter 12, Disbursements, Collections, and Concentration

Electronic Disbursement Products

EFT via wire and ach are used for B2C and B2B payments and G2C (govt to consumers), B2G, C2C. 79% of companies are switching from checks to electronic. Advantage is the ability to include remittance information with B2B payments.

Wholesale lockboxes

B2B payments, high payment amount, lower volume than retail. Handle remittance information than is not machine readable, not standardized.

Corporate trade Exchange (CTX)

B2B; consists of standard ACH payments and a variable length message addendum designed to convey remittance information in the ASC X12 data standard. can accomodate 9999 records of 80 characters each. useful for payments related to multiple invoices and substantial invoice detail

Payment Factories

Centralized AP center, which is often part of a centralized treasury operation known as an in-house bank or set up as part of ERP. Use in multinational orgs with large number of cross border payments. Can also be linked to multilateral netting or reinvoicing systems to reduce # of transactions and better control foreign currency exposure. To send payments outside of the organization, a single payment file can be sent to a global or regional bank.

Negotiating Bank in LC transaction

same bank as advising bank. examines documents presented by exporter and receives payment from issuing bank and pays exporter

Confirming bank in LC transaction

same bank as negotiating and advising bank. confirming bank commits to the exporter that the payment will be made if documents meet the terms of the agreement.

High-order prefix (Divisional) sort

service that allows a firm with multiple units o use a single bank account for all of its payments and still identify individual payments by unit. Codes identifying units are included in the check serial number field at the beginning of the check number. Paying bank sorts the payments by the high-order ode and reports them to the firm through account reconciliation. This is to facilitate identifying of sorting of payments by operating unit.

Merchant Services

services offered to help in processing credit and debit card transaction, includes acceptance, processing, returns, adjustments, point of sale terminals, supplies, customer support

Trade Acceptance

similar to BA except it is drawn on and accepted by importer. Can be used to verify importer's obligation to pay for purchased merchandise when the exporter is satisfied with the credit risk. Used by importers to secure financing from a bank or may be sold to a bank at a discount prior to maturity.

Open Account

simplest and least costly form of cross-border trade mechanisms. Offer least protection to seller. Used when parties have an existing relationship and trust each other to complete transaction.

Consolidated Remittance Processing (CRP)

solution to receiving different forms of remittance information. Before CRP was the electronic lbx, which provides a single collection point for all CH and wire payments, it can also process remittances in different formats into a single format for transmission into the firm's AR department for posting. CRP consolidates all remittance info into one data format for check, card, EFT payments. Can also provide receivables matching to

Imprest Accounts

sometimes used as a petty cash account; account that is maintained at a fixed amount for a particular activity or purpose. A field office may have an imprest account for local disbursements that is funded for 1-2 months of expenses. The local office submits expenses to HQ for approval and they replenish the account and maintain the balance.

Freight Payment services

specialists pay all of a shipper's freight bills, audit bills for possible overcharges and duplicate payments, and provide reports to help compare costs for different routes or carriers. Manufacturers and wholesale distributors typically use this service

Other fraud control measures

1. Check stock with microprinting, holograms, non-photo reproductible features 2. Segregation of duties 3. Dual authentication 4. Reduce free form/non repetitive wires 5. Separate accounts for deposits and disbursements 6. Specific-purpose deposit-only ZBA accounts with debit blocks/filters 7. Check blocks for ACH-only ZBA accounts 8. Dedicated computer for initiating EFT transactions

Objectives of cash concentration

1. Efficiently move funds from deposit banks to the concentration bank 2. Minimize excess bank balances Enables a firm to: 1. Balance excess and deficit cash positions across multiple locations, entities, and currencies 2. Optimize idle balances for offsetting fees or optimizing earnings credits 3. Invest a larger amount of funds, potentially increasing interest income 4. Pay down debt faster and minimize borrowings, reducing interest expense 5. Take advantage of supplier discount terms, reducing COGS or opex

Minimum Wire Transfer vs ACH (Calc)

= (Wire Cost - ACH Cost) / [Days Accelerated * (Opp Cost/365)]

International ACH transaction (IAT)

ACH debit or credit for payment going outside the US

Dollar-days (Calc)

Collection float is measured in dollar-days. Dollar amount of check * the number of days from the time the payor mails the check to the time the payee is granted credit. Average daily float is calculated by: sum of the dollar-days of float of items received in a given period / number of days in that period The cost of float is the opportunity cost of funds * the average daily float.

Countertrade

Countertrade: similar to barter but it used by firms that do not use currencies that are internationally traded to pay for imports from other countries. Example: an exporter ships merchandise to the countertrading country and in exchange it takes merchandise that may be sold elsewhere in the world. Pricing and FX rats are established between trading parties. Differs from barter because the exporter receives valuable goods for resale locally to recoup its costs rather than keeping the goods for its own purposes.

Positive Pay

Disbursement service used to combat payments fraud for checks and ACH. Company transmits a file that contains payment information to the bank at or before the time of distribution of checks/ACH. Bank matches the serial number and dollar amounts of payments presented against the file and only pays those that match all relevant criteria. Checks are matched against payee field, serial number, amount. ACH matches dollar amount and originator. Standard service is done on a batch basis. The company is given a period of time to decision any exceptions that arise. Bank cannot process without company authorization. Can set up default 'return all' or 'pay all'

Cost benefit analysis of using a lbx

Factors to consider: 1. Dollar amount of collected items 2.Collection time for items 3. Opportunity cost of funds (investment or borrowing rate) Compare differences in collection float for internal processing center vs. lbx provider (for retail lbx, float savings isn't as important as improved efficiency and lower unit cost)

Check Images

Imaging provides companies with faster access to disbursement check information and beneficial in conjunction with controlled disbursement, payable through drafts, and positive pay services.

Collections-Key Issues

Important issues are: 1. Speed 2. Security of payment 3. Availability of Remittance Info 4. Cost of collection

Tax Payments

In the US, Electronic Federal Tax Payment System is the primary method for collecting federal taxes withheld by employers from individuals' salaries and wages. Sub-sovereign/local tax authorities are also moving towards electronic tax payments. Some states in the US require electronic payment of taxes over a certain amount. Standard NACHA payment for federal and state taxes is TXP.

Receivables Matching

Matches processed payment against firm's open invoices, applies payment and updates the AR record

Physical Pooling

Must be same bank, currency. Different from ZBA because those must be to/from same entity, hence the nee for IC loans. Funds are automatically transferred to/from accounts to eliminate idle cash and fund cash outflows. Entities involved either have a cash surplus or deficit from a transactional perspective, but the bank account balances are zero. Used across multiple entities, countries. Funds transfers are accounted for via IC loans at an arm's length or market rate. Must use market rate, track loans, allocate interest Withholding taxes can apply to IC loans greater transparency creates less regulatory concern Must be done on currency-by-currency basis Widely available and most common form of pooling

Discount (Calc)

Offer the buyer terms to pay 3 days later by check or offer a discount. 1 - {1 / [1 + TD (r/265)]} TD = total days difference in timing between check and electronic payments r = annual opportunity cost rate % discount to offer to for float-neutral terms

Sight draft

Once documentation is collected, the LC may provide immediate payment (sight draft) or deferred payment (time draft). Sight draft means the advising/negotiating bank pays the exporter and is reimbursed by the issuing bank.

Integrated or Comprehensive AP

One approach: firm sends a data file to financial services provider periodically with list of all payments. File contains info on when to issue disbursement and to whom, and instructions on payment method. 2nd approach: financial services provider maintains database with payment, remittance, bank info. Database updated as payees are added or deleted or change. When a company needs a disbursement, they send only limited info to the provider.

Repetitive Wires

Only date and dollar amount change; use when frequent transfers are made to the same party. unique ID assigned to each template that contains all of the standing info. This is less risky because not much info is changing.

Account Reconciliation Program (ARP)

Partial reconciliation program: bank lists all paid items in numerical order by check serial number or in chronological order by date paid. The paid report shows the serial number, dollar amount, date paid With full reconciliation, firm supplies the bank with electronic file of all payments issued and the bank matches items paid against that file. Full reconciliation program is when the firm supplies the bank with an electronic file of all payments issued and the bank matches items against the file. For firms using positive pay, the same file is used for that. Many banks bundle positive pay with ARP for this reason.

Standby LC (guarantees outside of US)

Performance-based; variations of commercial LCs and are issued mostly by banks (insurance companies too in some countries). Serves as a vehicle to ensure financial performance of a bank's customer to a 3rd party. Unlike a standard LC, which is paid upon presentment and validation of documents, a standby LC is only payable if the primary entity fails to make a payment (rent deposit). Requires the presentation of a sight draft and documentation that supports bene's claim of nonperformance on the part of the issuing bank's customer. ISP98 are the rules governing standby LCs. Increasing number of banks are using standby LCs because the guidelines offer benefits to issuers and rules are easier to apply than the UCP rules.

Internal Mail Payment Process

Steps: 1. Receiving and opening mail 2. Separating check from remittance advice 3. Forwarding remittance advice, amount, date to AR 4. Preparing check for deposit 5. Transporting check to organization's deposit bank

Trading companies

Trading companies: used when an exporter sells products at a discount to an exporting trading company, which resells the products internationally. in some cases, a global parent company will set up a trade company to buy products and sell to subs of the company

Holder in Due Course

US problem. when a third party accepts a check that turns out to be fraudulent. As long as the third party can show that it was a "holder in due course" at the time it accepted the check, they may be able to collect the money from the maker of the check even if the actual check was fraudulent. May be holder in due course is the check doesn't appear to be a forgery or altered and the holder took the check for value, in good faith, without knowing that it was dishonorable and without knowing that it had an unauthorized signature. Tamper-resistant check stock using non-photo-reproducible features may reduce the problem.

Direct Deposit vi ACH

Used since early 1980s for govt and commercial payments and now global. DDs are transfers made from a firm's account to the accounts of employees, vendors, shareholders, trading partners via ACH. Can be used for payroll, expense reimbursements, interest payments, tax payments, dividend distributions, B2B transactions. Govts use for benefits distribution, social security payments, tax refunds. Low cost and certainty of timing.

Semi-repetitive wires

able to change date, dollar amount and description (invoice #).

Zero Balance Accounts (ZBAs)

accounts in which end of day balance is maintained at zero, credits and debits to the account will be debited to or credited from the master account. Funding is automatic. Disbursement accounts from which a company will issue a check, ACH, wire transfers. Multitiered ZBAs can be used to initiate payments from separate accounts or segregate different types of payments (AP, payroll, dividends, taxes). Reduces excess alances and the need for multiple, manual transfers, while maintaining distinct information and audit trails.

Advising Bank in LC transaction

advises the exporter of an LC in its favor

Teller Positive Pay

allows for real-time inquiry on checks by tellers at all of the branches of the bank, enabling the teller to match the item to the check issue on file in a real-time basis and hep prevent the cashing of fraudulent items.

Reverse Positive Pay

bank transmits the file of checks to the company and within a specified time period the company matches the file to list of check and notifies any items to be returned. Does not prevent fraudulent checks from being cashed at the paying bank teller line since it doesn't have access to the issuance file. Company must decide a default action (pay all or pay none) if they dony decision in time. With reverse pos pay, pay none would be rejecting all checks that were presented that day, not just exceptions. Reverse pos pay is not available for ACH

Controlled Disbursement

banks service that provides same day notification to a company of the amount of checks that will clear against its disbursement account on a given day. Only in US and was developed due to a ban on paying interest on positive account balances and limitations on overdrawn accounts. Historically, if the account was funded on the days the checks were issued, the surplus would lie dormant (not earning interest) until the checks were presented for payment. Controlled disbursement allows the firm to only fund the account the amount needed after the daily notification is received. Bank will receive final cash letter from the local Fed early in the morning and this gives the firm enough time to fund the account appropriately before the checks clear. Typically funded from a concentration account and can be automatic with a controlled disbursement set up as a ZBA. Or can be wire. Not normally ACH. As a risk control method, if funding account for controlled account is not at the same bank, then the bank may require an average day's balance or line of credit to cover the risk of nonpayment/nonfunding. Advantage is that is allows the treasury department to calculate daily cash position early enough to take advantage of better market rates for investing/borrowing. Discrepancies in funding notification can arise from returned items, OTC presentment, same-day presentment.

Barter

barter: involves the direct exchange of goods or services between two parties without the exchange of money. Used when funds cannot be repatriated bc of currency controls.

Corporate Credit or Debit CCD or CCD+

basic electronic payment format used for the concentration and disbursement of funds B2B. only a limited amount of remittance info can be sent this way. CCD+ is the same except has an addendum record to include 80 addl characters. CCD+ is the format used in the US Treasury's Vendor Express program that pays commercial supplies to federal agencies and B2B payments. useful when only a limited amount of info needs to be transmitted. CCD+ used is to report federal and state tax info using TXP banking conventions.

Electronic Bill Presentment and Payment (EBPP) and Electronic Invoice Presentment and Payment (EIPP)

bridge bw collections and disbursements that enable firms to send electronic statements and receive electronic remittances from customers. EBPP retail EIPP corporate sends billing data to customer with a link to their only portal for payment.

Mail Payments

can be processed internally or outsourced to a lockbox processor. Advantage of processing in-house is that the firm maintains control of the collection operations. May be useful if capturing detailed remittance info is important for AR team to apply payments. Disadvantage is the need to provide controls, processing delays of internal processing, adding staff to handle peak volumes Introduction of RDC and increased use of electronic payment and remittance transmission methods has changed the types of companies that use in house processing.

In House Card Processing Steps

card information and amount must be sent to the merchant processor to start collection process. Companies that choose to capture card information in-house and submit the information for collection must maintain PCI DSS compliance plus the following: 1. Install and maintain firewall configuration to protect cardholder data 2. Do not use vendor-supplied defaults for system passwords and other security parameters 3. Protect stored cardholder data 4. Encrypt transmission of cardholder data across open public networks 5. Use and regularly update antivirus software. 6. Develop and maintain secure systems 7. Restrict access to cardholder data 8. Assign a unique ID to each person with computer access 9. Restrict physical access to cardholder data 10. Track and monitor all access to network resources and cardholder data 11. Regular test security systems and processes 12. Maintain a policy that addresses information security for all personnel

Other cross-border payment methods

cash in advance = cash before delivery consignment

Payroll services

check and direct deposit file issuance, payroll tax filing and payment, expat payroll, retirement/pension administration. provide required tax docs. small to medium sized companies outsource because it is cost effective and convenient service

Lockbox

collection tool in which a FI or 3rd party receives mailed payments at a PO box address, processes the remittances, and credits the payments into a payee's bank account. Advantages of lockbox system over internal company payment processing center: 1. Reduced mail and processing float 2. Improved access to remittance information 3. Reduced information float 4. Reduced risk and improved security 5. Improved control and record-keeping capabilities 6. Uninterrupted service 7. Scalability 8. Proper segregation of duties Lbx procedures establish an external audit trail for payments received and segregate check processing from other AR functions. Lbx operators can set up business continuity plans, disaster recovery sites more easily than firms, resulting in higher reliability. Advantageous for firms with seasonal product lines

Electronic lbx

combines and presents remittance info from electronic payments. no mail involved not actual lbx, reporting is same as lbx

Bank Overlay Structure

combines both sweeping and pooling and used when firm's primary bank has branches in several countries. Local bank is used for collection and disbursement transactions and accounts and to sweep surplus to the primary bank. The primary/overlay bank then notionally pools or physically transfers cash balances in overlay accounts, providing a multicurrency solution.

Hybrid (Wholetail) lbx

combines features of both, and would handle smaller volumes but machine-readable documents

Collection or Lbx study

conducted to estimate float savings of implementing the lbx. Uses info from remittance envelopes and images of checks to get information on location of customers and those with the largest checks. The company's existing banks will perform an endpoint analysis that provides information about availability on an aggregate basis and item-by-item basis. Intercity mail times and bank availability schedules are also used. Determine which cities are the most effective collection sites.

Time draft

deferred payment of LC. Exporter provides credit terms. May be able to get paid earlier by discounting the time draft at a local bank, making it a banker's acceptance. Deferred payment can consist of one or more sight drafts at specified dates in the future. When MT financing is used for export of capital goods, a deferred payment LC may be used in conjunction with a term loan

Accounts receivable conversion (ARC)

eligible checks received at lbx can be converted into debits and processed as ACH debits. increase funds availability and reduce check handling. Must notify check writer that it will be converted, which is normally done by including a statement on bills or invoices

card payments

established guidelines/policies; includes p-cards, t&e, virtual, single-use cards

Remitting Bank in Documentary Collection

exporter's bank. receives collection documents from exporter, which are then forwarded to the importer's bank along with instructions for payment.

Imaging Technology

facilitates the processing of retail and whole remittance info. Allows paper documents to be scanned, converted to digital images, stored for distribution, handling, processing. Beneficial for firms with high volume of customer service inquiries. Benefits include: 1. Reduced processing costs 2. Reduced courier fees 3. Increased productivity 4. Improved accuracy 5. Automated updating of AR 6. Improved response time to customer inquiries 7. Faster resolution of lbx discrepancies

concentration account

firm's primary bank account

Armored Carriers and Smart Safes

firms with multiple retail locations use armored cars to collect deposits from retail outlets and ensure the safety of both the collections and staff. Because of the high cost of armored carriers, firms only use them for outlets with large amounts of cash receipts or where there are specific security concerns regarding the safety of employees taking deposits to the local depository banks.

Non-repetitive wires

free form; debit and credit parties are different every time. all information is variable, which makes it riskier. addl levels of approval are used for this like secondary levels of approval and segregation of duties

EFT Transfer with Remittance Info

historically unable to include remittance info in EFTs but able to now by modelling after ISO 20022 payment standard supported by SWIFT.

Float Neutral Terms

if a company wants customer to switch to electronic payments instead of checks, then they can offer float-neutral terms, which involves offering a payment discount or adjusting timing of due date so that the present value would be the same as the old terms.

Disbursements, Collections, and Concentration

refer to the movement of funds through the various working capital account

Standing wires

repetitive transfer instructions are established to move funds bw 2 accounts automatically when certain criteria are met. Standing wires are typically used for concentrating funds and the criteria can address timing to balance level

Issuing Bank in LC transaction

importer's bank that issues the LC in favor of exporter

Collecting/Presenting Bank in Documentary Collection

importer's bank, also issuing bank when transaction includes a LC. presents docs to the importer and in exchange, the bank collects cash in the form of a bank draft or a promise of future payment in the form of a bill of exchange.

Wire transfers

in US Fedwire and TARGET2 in Europe. can initiate via phone to online.

Letter of Credit

includes documentary collection as part of the process and is the most complex, costly vehicle for intl trade but provides best security for both parties. LC is issued by a bank, guaranteeing the payment of a customer's draft up to a stated amount for a specified period, if certain conditions are met. LC substitutes bank credit for buyer's credit, eliminating the credit risk to the seller. Widely used payment method for import/export and as a financing vehicle for cross border transactions. May be revocable ad canceled by the bank at any time or irrevocable (can only be canceled if both parties agree). This puts more risk on the seller who can ship goods and find out later that the LC has been cancelled. The Intl Chamber of Commerce (ICC) established rules governing commercial LCs, known as Uniform Customs and Practice for Documentary Credits (UCP). UCP 600 establishes an absolute deadline of five calendar days to review documents and pay or decline a draw.

Check Conversion

involves scanning the payor's check and converting it to an ACH debit. ACH transactions are cheaper than check processing. Checks can be converted as the point of presentment. Only available at US banks and limited to checks from US domiciled accounts. Can do this in amounts up to $25K.

Commercial LC

issued by bank as method of payment for trade transaction involving domestic and international shipment. Requires presentment of a draft, commercial invoice, shipping documents (documentary in nature). Bank's role is to examine documents, not the merchandise, so the importer must specify the required documents prior to payment. The buyer often pays for goods before receiving them.

Notional Pooling

making balancing entries on virtual accounts with no changes to the bank accounts held by company entities. All accounts are held at the same bank and the bank provides an interst statement reflecting the net offset, which is similiar to what would have been achieved with notional pooling. No physical movevment of money, IC loans are not required. Banks require credit facilities to support deficit balances in the pool. Requires extensive cross-guarantees among subs, which is difficult to implement. Banned in US, Germany, Mexico, Japan, Brazil. Recent tax, accounting, regulatory changes have negative implications for the future of notional pooling. Interest is earned/paid as bank interest. Provides tax efficiency Highly complex due to involved of banks and multiple jurisdictions Restricted in many currencies

Point of Purchase (POP) check conversion

many retailers have systems that allow customers to have their checks scanned, capturing accounting information from the MICR line at the POP, which is then converted into an ACH debit and the check is voided, returned to the customer, who signs a debit authorization in the form of a receipt.

Back office conversion (BOC)

retailers that accept checks at the point of purchase can convert checks to ACH debits. Explanatory signage must be present at point of presentment and merchant must put specific wording on the receipt indicating that it may be converted and clear same day

Drawdown wires

reverse wires where one party requests a debit from another account; transfer must be preauthorized

Documentary Collection

more complex and costly than open account, but offers some protection to both parties; trade payment mechanism that processes the collection of a draft and accompanying shipping documents through intl correspondent banks. It is the responsibility of the exporter to determine the instructions specified in the collection letter. Any discrepancies will delay or prevent payment. Information disclosed in a documentary collection letter: 1. Exporter Name 2. Importer Name and Address 3. Information on collecting bank 4. Details of the documentation accompanying the collection 5. Date, length, value of collection 6. Bank details and charges to be paid by the relevant parties 7. Recourse procedures in the event of nonacceptance or nonpayment 8. Nonstandard terms/procedures Collection letter specifies the exact procedure to follow before shipping documents are released to the importer. The importer usually requires the possession of the shipping documents in order to obtain merchandise. Documents are either released against payment or acceptance. When full payment is received from importer, the collecting bank transfers the funds to the remitting bank for payment to the exporter. Remitting bank can advance funds to exporter at a discount. Banks involved act only as paying and collecting agents and assume no direct obligation. Difference between documentary collection and LC is that bank does not guarantee payment in documentary collection, which is why it is less expensive. Issue with documentary collection and LC is discrepant documents, which may cause delays.

Concentration

movement of funds throughout the firm's various accounts following the collection of cash into one centralized account

Stop Payment

order given to the paying bank instructing it not to honor the check that has already been issued but not cleared. Usually done when a check is lost or stolen or the payor determines after the payment is issued that there is a mistake and the payment must be rescinded. can be initiated by voice, electronically, written. usually remain in place for 6 months

Prearranged Payment and Deposit (PPD)

payment application in which customers authorize a company or financial institution to credit or debit an account for normally recurring payments in fixed amounts. examples are payroll, expense reimbursements, dividends, social security benefits, tax refunds. C2B rent and mortgage payments, subscriptions, dues, memberships, insurance premiums, installment debt payments, utility payments.

Disbursements

payment of funds to employees, suppliers, tax authorities, capital markets etc. Process includes payments and reconciliation. Disbursements should be made exactly as requested by AP, required funds should be available, timing of the risk payments fraud is controlled.

Domestic Collection

payments received from customers in the same country as the collection company

Retail lockboxes

process payments that contain machine readable remittance documents (coupons), such as utility or credit card payments. Typically C2B payments and are high volume, which justifies the equipment cost used to process and read remittance info.

Smart Safe

the armorer carrier works with the bank and provides a special safe to the store that records deposits into the safe and report them to the armorer carrier and the bank. The bank provides credit at the time of the deposit into the safe and the armored carrier picks up the contents of the safe on a reduced schedule. Weekly instead of daily. Also allows for banks to service retail outlets that are not near any of its branches. The bank can accept deposits in any location that the armored carrier can service. This can help geographically disperse retailers handle their cash needs.

Book transfer

transfer between accounts at the same bank; they do not go through fedwire

Documents against acceptance (Documentary collection)

use a time draft that must be accepted by the importer before the collecting bank may release documents. Upon maturity, it is presented to the importer for payment.

Documents against payment (Documentary Collection)

use sight draft that requires the collecting bank to receive full and final payment of the amount owed prior to receiving the documents.

Telephone-Initiated Entry (TEL)

used for payments that are not pre-authorized, but are approved by consumers over the phone. TEL entries are single payments used for telephone catalog sales, ticket sales, one-time purchasess

Internet-Initiated Entry (WEB)

used for payments that are not preauthorized but are initiated by consumers using the internet. Can be either single payments for one-time purchases or recurring payments

Customer Initiated Entry (CIE)

used for preauthorized payments that are initiated by consumers using telephone bill paying services

Destroyed Check Entry (XCK)

used to clear and settle items that originated as checks, but the original paper item was lost or destroyed due to a catastrophic event.

Demand Deposit Account (DDAs)

used to facilitate business activity including the transfer of funds or other payment related activities

Banker's Acceptance (BA)

used to finance the import, export, or domestic shipment of goods an storage of properly titled goods. Often used in conjunction with LCs requiring a time draft drawn on a bank. Created when one person signs unconditional order directing a bank to pay a certain sum of money on demand or at a definite time to another person to finance a shipment or storage of goods. The unconditional written order, also known as a time draft, is stamped as accepted by the bank. By accepting the draft, the bank agrees to pay the face value of the obligation if the buyer fails to make payment. Bank accepts risk of the buyer defaulting, making international trade easier for buyers and sellers. Less expensive form of ST financing. BAs may be held by bank until maturity or sold at a discount in the secondary markets as ST negotiable instruments, where the bank's credit standing is substituted for the creditworthiness of the issuer. Pricing is composed of the discount rate and commission. Most BAs have maturities less than 180 days and are sold at a nominal spread over t-bills. Rates they trade at are BA rates. Eligible underlying transactions include import/export of goods, domestic storage transactions with the documents conveying title attached, and storage of readily marketable staples secured by warehouse receipts.

Re-Presented Check Entry (RCK)

used to transmit ACH debit entries in place of a paper check that has been returned for insufficient funds. requirements are that item is less than $2500 and be drawn on a consumer account. RCK originators must provide advance notice to the check writer that any check returned for insufficient or uncollected funds may be collected electronically. May do this up to 2 times after the first return and no more than once after the second return.

Remote Deposit Capture (RDC)

using a check scanner to capture a check payment which is used to facilitate deposit at the depository bank by image deposit. Service offered in the US and eliminates the need to take all check to the bank or send by mail or courier. This speeds up collection time, reduces the risk that checks will be lost or stolen in transit, and reduces the overall cost of check processing. As with a smart safe, RDC allows a bank to service locations that are physically far away from branch locations, alleviating the needs for subsequent cash consolidation from a local field bank. RDC scanners are being incorporated into electronic safes used for smart safe services, providing consolidated services to retail organizations. The product is limited to checks in USD.

Fraudulent Endorsement

when an authorized check is stolen and endorsed and cashed. Positive pay will not flag this as long as the check number, amount, and payee are not altered. Positive pay services detect duplicate checks, they cannot distinguish between original and a copy and will pay the first check presented. Checks that are returned for fraudulent endorsement are not subject to the next day return deadline and can be returned upon discovery of the forgery, subject to limits imposed by the bank.