Best Practices in Corporate Cash Management Speaker: John Purtill, CPA ICPAS Management Conference A

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Best Practices inCorporate Cash Management
Speaker John Purtill, CPAICPAS Management
ConferenceAugust 8, 2002
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Todays topics

• 1 - Using procurement cards
• 2 - Direct AP payment/AR collection
• 3 - Foreign payments
• 4 - Ebilling/EBPP
• 5 - Treasury workstation
• 6 - Check fraud
• ECP
• Positive pay

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First an update

• Bank reform 1997
• International comparison
• Profit improvement
• Consolidation

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Bank population
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Future

Competitive climate
Orderly market
Fee market
Profitable
Interest market
Well controlled
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National branching
Disappointing
Lock box/collection
Still needed
Local more than ever
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Actions

• Force competitive situation
• Split business
• Demand more support services
• Cash management consultation
• Trust services
• Get more input on products!

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1 - Procurement cards

Card issuer
Lookup table
Verify status
Authorization Received
Request authorization
Merchant
Card holder
Present card for payment
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Features

• Benefits
• Payment and float same
• Unit cost per card same
• Controls
• Reporting - Electronic
• Accounting - Default G/L some POS
• Sales and use tax
• Future

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Data Stages

• Stage I - Standard POS card
• Stage II - Procurement card
• Stage III - Invoice line items
• P-O-P G/L account for some

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Where to get

• GE Capital
• American Express
• Visa
• MasterCard

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2 - Direct payment/collection

• ACH about 30 years old
• Direct payment participation high
• DD payroll 50 to 100, depending
• EFTPS at 90 plus
• 8 billion transactions - 22 trillion
• Federal government
• Pays 98 of payroll directly
• Pays 74 of all payments electronically
• IRS tax refunds - only 12

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ACH system

Interbank entry
Bank/ACH Provider
Bank/ACH Provider
Data file transferred
Account credited
Customer
Vendor
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ACH negative float
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Electronic check conversion (e-check)

• Collection technique
• POP conversion paper check to ACH debit
• Presently for consumer checks only
• 141 million conversions in 2001

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E-check operation

Customer account
Customer
10/01/02
Pays By check
Account debited

Check scanned Returned to customer
Merchant
ACH
Cleared through ACH

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NACHA plan

• Notification to replace explicit approval
• Convert corporate items
• (Somewhat likely)
• Outcome
• E-check becomes automatic
• Operating costs drop
• Float disappears or is non-issue
• MUST reconsider payments

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Payment opportunities

• Employee payments besides payroll
• Routine vendor payments
• Cost issues
• Paper check 5 to 50
• ACH payment -

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How to do it

• Start print run with blank paper
• Macro object writes line to file
• Upload file to bank

object
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3 - Foreign payments

• Present alternatives
• Wire
• Letter of credit
• Paper check
• US/foreign dollar account
• US/foreign foreign currency account
• Emerging
• International ACH

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International ACH - Now

Outgoing gateway
Incoming gateway
Interbank entry
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Present Inter-bank system
Bank/ACH Provider
Bank/ACH Provider
Account credited
Data file transferred
Customer
Vendor
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International ACH - WIP

Outgoing gateway
Incoming gateway
i

Bank/ACH Provider
Bank/ACH Provider
Inter-ACH entry
Account credited
Data file transferred
Successor system
Customer
Vendor
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4 - eBilling (EBPP)

• Electronic Bill Presentment and Payment
• EBPP definition
• Electronic presentation of statements, bills,
  invoices and related information sent by a
  company to its customers, and corresponding
  payment for goods or services.

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Benefits of EBPP

• Biller
• Cost
• Faster more targeted billing
• Closer, lower-cost customer relationship
• Automate collections process
• Improve AR follow-up
• Retail consumer
• Targeted payment
• Cost - checks, postage and envelopes

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Sample eBill
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EBPP alternatives

• Relationship
• B2B
• B2C
• Method
• Direct presentment own site
• Consolidator

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eBay BillPoint

• Own site
• Base transaction fee 35
• Credit card 15-500 2.5
• ACH 15-200 1.5
• www.billpoint.com

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Yahoo BillPay

• Consolidator
• Enrolled merchants
• Customer generated
• Finance/yahoo.com/bp

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Resources

• Council for Electronic Billing Payment
• http//cebp.nacha.org/
• Industry education site sponsored by CEBP
• www.ebilling.org

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5 - Treasury workstation

• What
• Software for bank access
• G/L interface, bank rec, etc.
• Cost
• Normally free from commercial bank
• Third party from 2,000 to 100,000

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Features

• Inquiry balance, clearing, availability, rates
• Initiate wire, ACH, transfer, invest/sell
• Download transaction files
• Pay bank obligations, note payments
• Bank reconciliation
• Format GL entries, link to popular systems

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Benefits

• Online transaction cost wire, lookups
• About 10 of manually initiated cost
• Normally no wait for phone queue
• Timing of transactions the same
• Documentation similar
• Tracking better
• Control of transaction timing

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6 - Check fraud

• Annual cost 10 Billion
• Suspected Al Qaeda finance source in US
• Techniques
• Duplicate presentment
• Washed checks
• Altered checks
• Computer-produced counterfeit checks

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UCC changes

• Prorated responsibility
• Ordinary commercial care requirement
• Dishonor time frame limitation - 30 days

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Dishonor time line

June
July
2
2
6/2 Forged check presented
7/2 Dishonor period ends 30 days
7/?? Receive bank statement
7/?? Reconcile bank statement
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ECP

• Competing solution to e-check
• Difference
• Cost
• Method
• Result
• Imaging technique
• With or without truncation

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Electronic check presentment

Los Angeles
South Bend
Check mailed to vendor
Customer
Vendor
Deposit
Drawee bank
Check cleared overnight
Deposit bank
Exception information following morning
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ECP v. e-check

• E-check
• ACH product
• Check used as data entry device
• No cancelled check
• Consent required for now
• ECP
• Clearinghouse product
• Check is source document
• Consent not required

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More on e-checks

• Midamerica Payment Exchange
• www.mpx.org
• www.usedirectpayment.org

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Positive pay

Accounts payable
Finance department
Daily check register upload
Notification
Accept or dishonor
Bank overnight presentments
Payment file
Items checked against O/S check file
Bank Green
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Reverse positive pay

Accounts payable
Items checked against O/S check file
Finance department
Rejects
O/S Check file
Uploads presentments
Bank overnight presentments
Dishonor if necessary
Bank Green
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Thanks for listening!

• Contact information
• John S. Purtill, CPA
• 203-272-2844 (voice)
• 203-272-2583 (fax)
• John_at_Purtill.com