Cash Management Essentials

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Collections
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Collection System Objectives

• Mobilize funds
• Access daily deposit information
• Update accounts receivable (cash application)
• Support audit trails

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Typical Collection Process
Invoice Sent to Customer
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Mobilizing Funds

• Over-the-Counter / Field Deposit Systems
• Receipts collected at field locations
• Retail payments, including cash, checks, debit
  cards, credit cards, smart cards
• Wholesale payments,including procurement cards,
  checks

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Mobilizing Funds

• Mail
• Payment sent to company or to third party lockbox
• Used for both retail and wholesale payments
• Electronic --ACH or wire transfer
• Repetitive consumer payments
• Repetitive and one-time wholesale payments

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Payment Systems and Instruments

• Payment instruments
• Cash
• Checks
• Credit card, debit card, smart card
• ACH debit or credit
• Giro accounts
• Wire transfer
• Intermediaries

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Collection Float

• The delay between the time the payor mails the
  check and the time the payee receives available
  funds
• Float components
• Mail (1 - 5 days)
• Processing (1 -3 days)
• Availability (0 - 3 days)
• International issues

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Collection Float Measurement

• Collection Float is measured in dollar days
• Collection Float dollars x days
• Example

Collection Float Dollars x Days
1,500,000 x 4 days 6,000,000 dollar days
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Key Collection Float Measures

• Average Daily Float
  Total Dollar Days of Float
  Total Calendar Days in Period
• Annual Cost of Float
  Average Daily Float x Opportunity Cost

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Float Calculation Example
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Calculate

• Average Daily Float
• Annual Cost of Float
• Assume
• 30 days in month
• Cost of funds is 9.0

33,000,000 / 30 1,100,000
1,100,000 x .09 99,000
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Collection Systems
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Lockbox

• A collection method by which a bank or third
  party contracts to receive, process and deposit a
  companys receipts
• Wholesale (manual / semi-automatic) -- high
  dollar / low volume (business payments)
• Retail (automated) -- low dollar / high volume

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Types of Lockboxes

• Retail
• Consumer Payments
• High Volume
• Small Dollar Amounts
• Main Concern is Usually Processing Costs
• Automated Process
• Maintenance 192.86
• Per Item 0.14

• Wholesale
• Corporate Payments
• Low Volume
• High Dollar Amounts
• Main Concern Float
• Manual Process
• Maintenance 110.87
• Per Item 0.45

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Lockbox Studies

• Dollar Amount of Remittances
• Zip Codes of Mailing Locations
• RTN of the Check
• Postmark Dates
• Date of Deposit
• Customer Name

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Selecting a Lockbox Site

• Availability
• City with Fed. Branch or RCPC
• Major Postal Processing Facility
• Area Distribution Center (ADC)
• Sectional Center Facility (SCF)
• Airport Facilities
• Dont Forget Airmail Arrivals

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Processor Characteristics

• Unique 5 Digit ZIP
• Sorted on the first pass at the destination ADC
  or SCF
• Caller Box Services
• Deposit Deadlines
• Availability
• Payment Media
• Financial Institution Relationships
• Complementary Services