Chapter 12

Question 1

Reverse positive pay

Answer 1

• bank transmits a file of the cks presented for payment (daily/intraday basis)
• within a specified time, company reviews and approves cks bank may process
• does not apply to ACH– only paper cks

“pay none” or “pay all” terms: pay/reject all cks not approved in time

Question 2

formula: average daily float

Answer 2

= total “dollar-days” of float in a given period of time / # of days in the period

Question 3

formula: annual cost of float

Answer 3

(aka “is the opportunity cost of funds”)

= average daily float x opportunity cost of funds %

Question 4

documentary collection (info disclosed)

Answer 4

info disclosed:

• info regarding collecting bank– not remitting bank
• date, tenor and value of the collection
• details of bank and other charges to be paid by the exporter, importer, or both
• recourse procedure in the event of a nonacceptance or nonpayment

Question 5

retail lockbox

Answer 5

• typically C2B
• HIGH VOLUME
• easy remittance (machine-readable expensive machines)

Question 6

wholesale lockbox

Answer 6

• typically B2B pmts.
• HIGH $ VALUE / low volume
• non-standard remittance (not machine readable)

Question 7

hybrid (“wholetail”) lockbox

Answer 7

• low volume
• easy remittance (machine-readable)

Question 8

electronic lockbox

Answer 8

• combines and presents remittance info from electronic pmts
• not literally a lockbox (no paper cks)
• has many traditional lockbox reporting features

Question 9

collection study (for lockbox selection purposes)

Answer 9

• to determine most cost-effective collection system based on a company’s remittance data characteristics
• uses info from remittance envelopes and ck images of checks to determine:
  
  • location and geographic concentration of customers and
  • location of the customers making the largest ck pmts.

Question 10

to determine most effective city/cities for collection sites:

2 main things to consider

Answer 10

• mail time studies (i.e. regional mail timeframes)
• banks’ availability schedules

Question 11

in-house processing center vs. bank lockbox

Answer 11

• in-house center
  
  • • more control over collection ops
  • • accurate cash application by AR dept
  • • can be made more effective/efficient with remote deposit capture (RDC) and increase use of electronic payment/remittance info
  • +usually CHEAPER than a lockbox…!?
• lockbox
  
  • • reduces mail, processing and availability float

Question 12

letter of credit

Answer 12

a document issued by a bank, conditionally guaranteeing pmt. of a customer’s draft for a stated amt. and time.

• subs bank’s credit for buyer’s (virtually eliminates credit risk to seller)
• widely used for import/export shipments
• ideal terms when dealing with new customers

Question 13

ACH standard entry class codes: ARC

Answer 13

• eligible cks in lockbox converted to ACH
• must notify customer

Question 14

ACH standard entry class codes: BOC

Answer 14

• convert cks rcvd. at POP or manned bill pmt locations into ACH
• display signate @ POP/premises

Question 15

ACH standard entry class codes: CCD and CCD+

Answer 15

CCD (corp credit/debit) - basic B2B format to concentrate/disburse $

CCD+ - includes addendum record (< 80 characters of remittance info)

Question 16

ACH standard entry class codes: CIE

Answer 16

consumers preauth. pmts via phone (bill paying svcs)

Question 17

ACH standard entry class codes: CTX

Answer 17

• for B2B trade pmts
• variable length addendum for remittance info
• ASCX12 data standard compliant

Question 18

calc. example

Answer 18

opportunity cost % / 365 days = opportunity cost % per day

opportunity cost % per day x number of days float = discount to be offered

Question 19

lockbox study: 3 main factors to consider

Answer 19

• opportunity cost of float
  
  • $ amt of collected items
  • total collection time for items
  • current opportunity cost of funds (e.g., ST investment or borrowing rate)
• intercity mail times
• bank availability schedules

Question 20

banker’s acceptance

Answer 20

• a discounted instrument, not a coupon instrument
• can be used to finance import, export, or domestic shipment of goods, as well as the storage of properly titled goods
• fequently issued in conjunction with letters of credit that require a time draft

Question 21

domestic cash concentration system

Answer 21

typically xfer funds from outlying depository locations (often different banks) to a central bank account @ firm’s primary bank (typically, a concentration acct)

main objectives:

Question 22

disbursement system

Answer 22

• include both the pmt. initiation and reconciliation.
• improve control over:
  
  • Disbursements made exactly as requested by AP
  • Verify pmts accurately processed/debited from the disbursementacct.

Question 23

Remote deposit capture

Question 24

smart safes

Question 25

high-order prefix

Question 26

Potential benefits of image technology in remittance-processing function

Answer 26

• lower processing costs and courier fees
• productivity
• accuracy
• auto-update AR
• better/faster customer service
• faster lockbox discrepancy resolution

Question 27

ck imaging sevices

Answer 27

• provides faster access to disbursement ck info
• helps expedite approvals in “positive pay” svcs.
• primary use is to xchange info btwn bank and its customer

Question 28

imprest account

Answer 28

• sometimes, aka “petty cash”
• acct. maintained at a fixed amt., for a particular purpose/activity (when needed, a HQ receives forms to fund the account, and reimburses the acct directly, to return the acct balance to its fixed, pre-determined amt.)

Question 29

banker’s acceptance (BA)

Answer 29

unconditional written order directing a bank to pay a draft (demand/ time draft), usually to finance shipment or temp. storage of goods, properly titled.

• bank agrees to pay obligation’s face value if buyer (draft issuer/ party who drew the draft) fails to make payment
• used frequently w/ letters of credit (L/Cs) requiring a time draft drawn on a bank

Question 30

Internet-initiated entry (WEB) payment format

Answer 30

consumers provide debit authorization for pmts. via internet.

• single/one-time pmts or recurring
• not a pre-authorized debit
• not a conversion of ck to ACH