Automation of your Receivables

Valjean SanchezSenior Vice President

Union Bank of CaliforniaProduct ManagementApril 27, 2006

• Payer receives a bill with the disclosure:

“Your check will be converted to an electronic funds transfer. By sending your

completed, signed check, you authorize <<biller>> to copy your check and to

use the account information to make a transfer from your account equal to the

amount printed on the check.” (Go through your legal department using

Regulation E guidelines!)

• Payer sends a check (source document)

• Biller receives the check, images and processes the check turning it into an

ACH-ARC.

• Biller sends ACH-ARC file to their Bank. Their bank processes the ACH-ARC

entries and credits the Biller’s account with available funds next business day.

• Biller keeps the check no longer than 14 days, then shreds it in a secure way.

What is Accounts Receivable Check Conversion?

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• Payer goes to drop a check off in a drop box with notice posted:

“Your check will be converted to an electronic funds transfer. By dropping your

completed, signed check into the drop box, you authorize <<biller>> to copy

your check and to use the account information to make a transfer from your

account equal to the amount printed on the check.” (Go through your legal

department using Regulation E guidelines!)

• Payer deposits the check (source document) into the drop box.

• Biller picks up the check, images and processes the check turning it into an

ACH-ARC.

• Biller sends ACH-ARC file to their Bank. Their bank processes the ACH-ARC

entries and credits the Biller’s account with available funds next business day.

• Biller keeps the check no longer than 14 days, then shreds it in a secure way.

What is Accounts Receivable Check Conversion?

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• Payer writes a check to present over the counter.

• The cashier runs the check through the register (maybe imaging the check.)

• An authorization is printed out of the register and it reminds us of signing for a

credit card purchase. The print out reads:

“By signing, you authorize <<Company>> to use the account information on this

check to make an electronic transfer from your account equal to the amount

printed on the check.” and probably, “We will charge you a $$$ for a returned

check and you authorize us to collect that fee via the ACH. (Go through your

legal department!)

• Payer signs.

• Cashier returns the check stamped VOID and turns the payment into an ACH –

POP.

• Biller sends ACH-POP file to their Bank. Their bank processes the ACH entries

and credits the Biller’s account with available funds next business day.

What is Point of Purchase Conversion?

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What does an ARC or a POP look like?

It starts looking like a check:

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56.78MunicipalityFifty six dollars and seventy eight cents

As an ACH-ARC or POP:

6271234567891111122222 5678 155CHARLES CHECKWRITER 0122000491234567

|:123456789|:155|||11111|||22222||’

2006

Water Bill

What does an ARC look like?

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As an ACH-ARC or POP:

6271234567891111122222 5678 155CHARLES CHECKWRITER 0122000491234567

On Charles’ Checking Statement (normally under the electronic section):

1/10/06 $56.78 155 Municipality Water Pymt

Check 21

HR 1474 Text6-05-03Passed House 405-06-27-03Passed Senate by Unanimous Consent 7-15-03 An Act to facilitate check truncation by authorizing substitute checks, to foster innovation in the check collection system without mandating receipt of checks in electronic form, and to improve the overall efficiency of the Nation's payments system, and for other purposes, do pass with the following:

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Check 21 makes a substitute check equal to the original check under the law.

What does this not mandate but enable? Paves the way for Image Exchange:

1. Financial Institutions may reduce dependence on transportation.

Ex. – West Coast Bank accepts a deposit of an East Coast check.

Instead of flying the check to East Coast to clear, West Coast Bank

images the check and sends it to the East Coast. West Coast agent

prints the substitute check and the check is presented for payment.

2. Financial Institutions may exchange images.

Ex. – West Coast Bank accepts a deposit of an East Coast Bank

check. West Coast Bank images the check and transmits it to East

Coast Bank for payment based on the image.

3. Financial Institutions may accept image deposits.

Ex. – Your company images checks and transmits them to West

Coast Bank as a deposit.

What is Check 21 facilitating?

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What can Check 21 make my checks look like?

The Substitute Check ( a term used in the Check 21 Act) is operationally called an “Image Replacement Document”. An IRD and a Substitute Check may not always be equal.

The substitute check must be machine readable (MICR friendly) just like original checks.

  

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What can Check 21 make my checks look like?

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What can Check 21 make my returns/deposited returns look like?

Original substitute check used for a return of a business sized check---front

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What can Check 21 make my returns/deposited returns look like?

Original Substitute Check used for a return of a business sized check---back

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What Do Payees Want To Do:

Check 21 Act

Substitute Documents/IRDARCPOPRCK

Debit CardsCredit CardsACH-WebACH TelACH Recurring

ACH/was check OTHER TRANSACTIONS

1. Clear payments in a less costly way2. Collect funds quickly minimizing float.3. Minimize returns.4. Streamline:

1. Handling of payments2. Posting of payments to Receivables3. Research

5. Ensure ease of use for employees and customers encouraging acceptance

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What can Automation do for you?

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1.) Better Control over depositsMultiple locations deposit Trips to the bank to depositDeadlines seem to be extended

2.) Cost savingsReduction in laborCosts for couriers Float over time will be reducedAutomated upload to a Receivables System

3.) Improved handling of deposited returns

Comparisons

         

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ARC POP Check 21

Born 3/15/2002 9/15/2000 10/28/2004

Eligible 1st party consumer checks

1st party consumer checks

All checks drawn on US Banks in US dollars

Authorization Requirements

Notification prior to writing check before each payment

Authorization Receipt signed at time of purchase

N/A

Who retains check?

Payee Payer Truncating Bank

Comparisons

         

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ARC POP Check 21

Retain check for how long?

Up to 14 days; then destroy

N/A Undefined

Retain image for how long?

2 years held by ODFI or agent

N/A Covered by UCC (typically 7 years)

How can check writer obtain check?

Ask their Fin Ins or Payee

N/A May receive substitute check from paying bank

Comparisons

         

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ARC POP Check 21

Consumer Protections

Right to dispute- EFT Act and Reg E

Right to dispute- EFT Act and Reg E

Expedited Recredit- Check 21 and Reg CC, UCC

Timeframe for disputes

60 days from settlement date

60 days from settlement date

40 days from date the statement is mailed or substitute check is made available to consumer

Comparisons

         

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ARC POP Check 21

Information on customer statement

Date, amount, payee, check number

Date, amount, payee, check number

Undefined under Check 21

Legal Framework

NACHA Operating Rules

NACHA Operating Rules

Check Clearing for the 21st Century Act

Other Legal EFT Act,

Regulation E, Fed Operating Circular

EFT Act, Regulation E, Fed Operating Circular

Reg CC, Clearing House Rules, Fed Operating Circular

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What about:

•Continuing Check Functions: •Receive and process checks/paper returns•Continue collection process for returned items.

•Expected Reductions: •Savings on forward presentment costs: deposit preparation, deposit fees and transportation to the bank. •Reduction in customer service costs related to check payments, collection fees and check return fees.

•Expected increases: •Increases in initial set-up, maintenance of a database, customer service training, customer service related to ARC/POP/Check 21 Image Deposit payments •New costs for truncating and destroying checks and storing images.

• Evaluate your receivables

• Who pays me?

• How do they pay me?

• With what financial instrument?

• What is the timing

• Review how you process receivables today

• Where are my costs today?

• Where can I save if I change?

• Internal costs

• Vendor costs

• Bank fees and float impact

• Exception Processing

What is my volume of eligible items?

How do I target my processing to ensure best collection rates?

Questions to start the process:

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How can I convert?

• Questions to start the process:

• How can I truncate and image the checks?

• In-house processing

• Outsource

• What about image standards?

• If I create an image file, what format do I use?

• How do I sort my ACH from my non eligible ACH?

• How do I address returns?

• NSF

• Administrative?

• How do I address adjustments?

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What else is new?

• EDI made easy!

• New ANSI standard: EDI EPN STP 820

• UPIC – Enables B2B while reducing fraud

• Universal Payment Identification Code

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Valjean SanchezVice President

Product Management

QUESTIONS?