Session 7, Module Four:
Cash and Liquidity Management

Chapter 10:
Payment
Systems,
Collections and
Disbursements
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Session 7: Module 4, Chapter 10 - 1
Discussion Question
Identify the following steps in the payment
process.
Answers:
1. Information contained in payment instrument
Payment
(i.e., MICR line on paper check)
instructions
Clearing
2. Transfer of payment instrument and required
payment information
Settlement
3. Actual transfer of value from payor to payee
Payment
generation
4. Payment item created per payment instructions
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Session 6: Module 4, Chapter 10 - 2
Cash and Paper Payment Systems
Cash Systems
• Use currency and coin in
physical form
• Primarily used by
consumers for small
transaction amounts
• Typically countries use
their own currency for
transactions; some use
regional common currency
• Self-sufficient
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Paper Systems
• Use checks, drafts or
similar items as payment
instruments
• Most of paper items are
debits
• Most countries have
various types of clearing
channels
• Settlement mechanism is
well-defined
• Not considered final until
specified return periods
have elapsed
Session 6: Module 4, Chapter 10 - 3
Electronic Systems
Large value
Size of
payment
Small value
Business/
wholesale
Real-time
Urgency
of
payment
Primary
user
Consumer/
retail
Same-day
Non-urgent
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Session 6: Module 4, Chapter 10 - 4
Discussion Question
Which of the following is true of gross versus net
settlement systems?
a) Net settlement systems are batch processing
systems that send the entire amount of each
transaction at day’s end.
b) Gross settlement has a separate value transfer
between payor and payee and is usually
accompanied by real-time settlement.
c) Electronic credit transactions are not
considered final immediately after net
settlement.
Answer: b. This is called real-time gross
settlement (RTGS).
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Session 6: Module 4, Chapter 10 - 5
Consumer Electronic Payment
Systems



Electronic transfer is dominant
consumer-to-business, consumer-toconsumer and consumer-togovernment payment method outside
U.S.
U.K., Switzerland, Netherlands,
France, Belgium, Japan and most
Nordic countries use giro systems.
Credit card, debit card, smart card,
stored value card.
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Session 6: Module 4, Chapter 10 - 6
Key Participants in Payment Clearing
Process
Correspondent bank(s)
Paying bank
Receiving bank
Central bank/
clearinghouse/third party
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Session 6: Module 4, Chapter 10 - 7
Discussion Question
The settlement process uses all of the
following methods EXCEPT
a) bilateral exchange of value between paying
and receiving banks.
b) physical movement of paper payment
instruments between parties/banks.
c) correspondent bank accounts.
d) reserve accounts at a central
monetary or banking authority.
Answer: b. This answer describes clearing.
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Session 6: Module 4, Chapter 10 - 8
Society for Worldwide Interbank
Financial Telecommunication (SWIFT)




Interbank
telecommunications
network.
Banks send paymentrelated information but
do not transfer value.
Transfers use
correspondent banks.
For corporates, SWIFT
has standardized multibank platform.
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SWIFT messages




Balance reporting
L/Cs
Documentary
collections
FX transactions
Session 6: Module 4, Chapter 10 - 9
Issues Related to Cash and Paper
Acceptance
Cash payments
Paper payments
• Providing payment
security and
integrity
• High potential for
theft or fraud
• Imposes significant
cost on the company
in managing these
cash payments
• Cross-border check
clearing and
settlement is a slow,
complicated and
expensive process.
• Check or image must
move through
various banks
involved.
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Session 6: Module 4, Chapter 10 - 10
Electronic Payment Security






Physical security and
limited access
Passwords and
personal identification
numbers (PINs)
Test keys and codes to
validate wire transfers
Repetitive wires to
limit where and to
whom funds can be
transferred
Multiple approval
levels
Segregation of duties
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
Electronic security
measures
Encryption
Message
authentication
 Digital certificates
 Security devices (keys
or tokens)


Session 6: Module 4, Chapter 10 - 11
Discussion Question
Describe two uses of net settlement systems.
Answer:
 Clearing electronic payments
between financial institutions
 Intercompany net settlement of
receivables and payables among
participating companies; single
transfer of net amount due
at the end of a specified period
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Session 6: Module 4, Chapter 10 - 12
Global Banking Systems and Practices:
Identification of Bank Accounts

Europe and
elsewhere (SEPA,
ISO standards)
Bank Identifier
Code (BIC)
 International Bank
Account Number
(IBAN)


United States

Routing transit
numbers (RTNs)
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Session 7: Module 4, Chapter 10 - 13
International Banking
Characteristics—Europe


Member countries
delegate some
sovereignty to European
Parliament
EMU



Integrate economies of
EU members
European Central Bank—
unified monetary policy
for euro zone
Single Euro Payments
Area (SEPA)
 European Payments
Council (EPC)
established SEPA to:



Euro


Elimination of currency
exposures or exchange
rate crises in euro zone
Reduced transaction
costs
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

Provide straight-through
electronic payments
system
Harmonize fees
Eliminate cross-border
charges
Cashless euro payments
in euro zone with single
account, single
instrument
Domestic transfers
Session 7: Module 4, Chapter 10 - 14
Discussion Question
In Europe, what are the four primary
mechanisms for the settlement of euro
payments and transfers?
Answer:
 TARGET2: Real-time settlement for urgent, high-value
cross-border electronic payments in euros. Central
banks use it to mobilize liquidity in Europe.
 Correspondent banking: Low value, bulk
payments.
 Internal networks and local clearing
channels.
 Euro bankers association (EBA): Major
clearing banks operate a net settlement
system primarily for inter-bank transactions.
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Session 7: Module 4, Chapter 10 - 15
International Banking
Characteristics—Canada

Bank of Canada
(central bank):





Controls monetary
policy
Supplies currency
Promotes Canada’s
financial system safety
Provides efficient and
effective funds
management services


Five major Canadian
financial institutions
provide nationwide
banking through
branches.
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Approximately 60 other
smaller financial
institutions serve a
variety of special
interests and markets.
Canadian Payments
Association (CPA):



Operates a national
system for the clearing
and settlement of checks
Performs electronic
payments
Manages changes to the
national payment system
Session 7: Module 4, Chapter 10 - 16
Discussion Question
In Canada, what are the four primary systems
for the clearing and settlement of payments?
Answer:
 Automated Clearing Settlement System (ACSS)
 Large Value Transfer System (LVTS)
 U.S. Bulk Exchange (USBE)—a system parallel
to the ACSS, used for clearing payment
items denominated in U.S. dollars and for
settlement of USBE balances occurring
through correspondent banks in New York
 ACH for cross-border settlement between
U.S. and Canadian banks
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Session 7: Module 4, Chapter 10 - 17
International Banking
Characteristics—Mexico

Banco de México (Banxico) is the central bank:



Monetary policy
Lender of last resort
Shares exchange rate policy and regulatory supervision of finance
with the Ministry of Finance and Public Credit

Resident and non-resident entities permitted to retain both
Mexican peso (MXN) and foreign currency bank accounts
(resident both domestically and abroad, non-resident just
domestically)

Stable and well-capitalized banking system:



26 financial groups, 42 multiple banks, 26 finance companies, 81
representative offices
SPEI is the high-value RTGS system
SICAM settles paper-based checks and nonurgent electronic
payments
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Session 7: Module 4, Chapter 10 - 18
Anti-Money Laundering (AML) and
Its Impact on Payments
USA PATRIOT Act
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strengthened AML.
 FIs must report
transactions of a
suspicious nature to
financial intelligence
unit in their
countries.
 Scrutiny and
reporting
requirements.

Bank Secrecy Act
Session 7: Module 4, Chapter 10 - 19
(BSA)
Due diligence on
customer identity and
transaction
monitoring
Reports to FinCEN
Cash deposit ≥
$10,000 file CTR or
€15,000 in EU
Patterning
AML: Financial Action Task Force and
Office of Foreign Assets and Control
FATF
• International body to
develop and promote
national and
international AML
policies
• Political will
• Keep AML current
• Monitors progress
• Reviews techniques and
counter-measures
• Collaborates
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OFAC
• Office of U.S.
Department of Treasury
• May impose controls on
transactions and freeze
assets under U.S.
jurisdiction
• Maintains list of
prohibited foreign
entities
• Companies responsible
for checking list
Session 7: Module 4, Chapter 10 - 20
Discussion Question
What was created to mitigate the risk that a high
level of settlement risk in existing practices,
coupled with an unexpected event or failure, could
trigger a serious disruption of the global FX
markets and financial system liquidity?
a) Straight-through-processing
b) Continuous linked settlement (CLS)
c) ISO 20022 global messaging
standard
Answer: b. CLS allows a simultaneous
exchange of payment versus payment to
eliminate settlement risk.
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Session 7: Module 4, Chapter 10 - 21
Straight-Through-Processing (STP)
Allowing
information that
has been
electronically
entered to be
transferred from
one party to
another in the
settlement
process without
reentry
Benefits
 Better, more efficient connectivity
between transaction participants
 Increased speed of transaction
settlement
 Complete integration of all backoffice systems and applications
 Reduction of human intervention in
transaction process
 Overall reduction of total
operational costs and cycle times
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Session 7: Module 4, Chapter 10 - 22
U.S. Payment Systems and
Instruments
Checks/paper-based


Retail: Highvolume, lowvalue
transactions
Wholesale: Lowvolume, high-value
monetary/book entry
Card-based
ACH
Fedwire
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CHIPS
Session 7: Module 4, Chapter 10 - 23
Discussion Question
All of the following are primary regulations
related to paper-based payment instruments
in the U.S. EXCEPT
a) UCC Article 3: Negotiable Instruments.
b) UCC Article 4: Bank Deposits and
Collections.
c) Fed Regulations Z and BB.
d) Fed Regulations CC and J.
Answer: c
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Session 7: Module 4, Chapter 10 - 24
Sample Business Check
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Session 7: Module 4, Chapter 10 - 25
The Check Clearing Process


Key event is
presentment—the
delivery of the
original or a
substitute check to
the paying bank
Check 21



Image replacement
document (IRD)
Electronic image
exchange and print
IRD if needed
Remote deposit
capture (RDC)
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
Value is subtracted
from bank’s account
with:




Federal Reserve bank
Correspondent bank
Some other clearing
channel
On-us check
clearing


Simultaneous debit
and credit
Same-day or
immediate
availability
Session 7: Module 4, Chapter 10 - 26
Transit Check Clearing


Checks drawn on
banks other than
bank of deposit
Clearing channels





Clearinghouse
Correspondent bank
Direct send or direct
exchange
Federal Reserve
System
Fed receives 99% of
checks electronically
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Session 7: Module 4, Chapter 10 - 27
Deadlines and Deposit Timing:
Ledger Cutoff Time



Defines start and
end of banking day
Time of day when
deposit must be
received to be
posted to ledger
balance of
depositor’s account
Established by
individual banks
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Session 7: Module 4, Chapter 10 - 28
Deadlines and Deposit Timing:
Deposit Deadline
Time within banking
day when item must be
ready for transit at
depository bank’s
processing center to
qualify for availability
stated in availability
schedule
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Session 7: Module 4, Chapter 10 - 29
Related Funds Availability Terms

Availability
schedules


Checks: 0 to 2 days
Balances and
float:
Ledger balances
 Available balances
 Collected balances
and deposit float

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
Availability
factors:



Pre-encoding/
RDC/image
capture
Reject items
As-of
adjustments
Session 7: Module 4, Chapter 10 - 30
Additional Paper-Based Instruments








Payable through
draft (PTD)
Pre-authorized draft
Remotely created
check (RCC)
Money order
Traveler’s check
Sight and time draft
Cashier’s check/
certified check
State warrants
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Session 7: Module 4, Chapter 10 - 31
Returned Paper Items and Check
Collection



Number of
checks declining
Returned items
as percentage of
checks
increasing
Risk reduction


Check verification
Check guarantee
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
Reasons






Non-sufficient funds
(NSF)
Uncollected funds
hold (UCF, UFH, UF)
Only NSF and UCF
eligible for
redeposit
Fed Operating
Circular No. 3
RCK format (ACH)
Fed Return®
Session 7: Module 4, Chapter 10 - 32
Discussion Question
What ACH mechanisms facilitate check
clearance at the POS, a lockbox, or drop box
environment or at other eligible points of
presentment?
Answer:
 Point-of-purchase (POP) check conversion: Systems
that allow customers to have checks scanned, capturing the
account information from the MICR line at the POP.
 Accounts receivable conversion (ARC): Eligible
checks received at a lockbox or drop box can be
converted into electronic debits and processed
as ACHs.
 Back office conversion (BOC): Conversion of
eligible checks to ACH debits in the back office at the
POP or other manned bill payment locations.
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Session 7: Module 4, Chapter 10 - 33
Electronic Funds Transfers (EFT):
Automated Clearing House (ACH)
Batch processing

clearinghouse


Value
Payment-related
information
Electronic clearing and
settlement:
Fed
 Electronic Payments
Network (EPN)


NACHA membership
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Session 7: Module 4, Chapter 10 - 34
Checks versus ACH Transactions
Checks
ACH transactions
Paper-based
Electronic
Limited to payment
instructions
Can transmit additional
payment-related
information
Parties termed payor and
payee
Parties termed originator
and receiver
Can only debit payor’s
account and credit payee’s
account
Can be either debit or credit
transaction; credits move
funds from originator’s
account and debits move
funds from receiver’s
account
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Session 7: Module 4, Chapter 10 - 35
Clearing and Settlement of ACH
Transaction: Direct Deposit Example
1
Company
(Originator)
2
Company’s
Bank (ODFI)
3
4
5
ACH
Operator
Employee
(Receiver)
6
Local ACH
Operator
Employee’s
Bank (RDFI)
ACH
Operator
Banks (Other RDFIs)
7
ACH
Operator
1.
2.
3.
4.
5.
Prepare ACH file.
Transmit file.
Sort out on-us.
Transmit file.
Sort transactions
to other ACHs.
6. Transfer value
from company’s
bank to
employee’s bank.
7. Transmit file.
Other Employees
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Session 7: Module 4, Chapter 10 - 36
Discussion Question
Which of the following is true of ACH transactions?
a) In an ACH debit transaction, funds are moved
from the originator’s account to the receiver’s
account.
b) ACH transactions are value dated (payment
instructions include settlement dates).
c) ACH transactions have processing and
availability float.
d) If an ACH file is released by an ODFI, the
ODFI need not settle if the originator’s
account has insufficient funds.
Answer: b
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Session 7: Module 4, Chapter 10 - 37
Automated Clearing House


Same-day ACH
Other ACH
considerations







PPD
CCD or CCD+
CTX
RCK
IAT
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Check conversion
formats

Prenotifications
Authorization
ACH payment
formats







ARC, POP, BOC
CIE
TEL
WEB
XCK
ACH regulations



NACHA operating
rules and guidelines
UCC Article 4A
Fed Regulation E
(consumer debits)
Session 7: Module 4, Chapter 10 - 38
International ACH Transactions (IAT)
and FedGlobalSM ACH Payments
IAT






In originating or receiving ACH
cross-border transactions
When originator or receiver is
U.S. subsidiary of non-U.S. firm
When ACH payments are sent to
pensioners or employees living
abroad
When full amount of ACH
payment is sent to account
outside U.S., even if initially going
to U.S. account
When items are bought/sold over
Internet and payment involves
cross-border transaction
AML mandatory addenda
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FedGlobal





Account-toaccount
Account-toreceiver
Fixed-to-variable
Fixed-to-fixed—
USD to USD
Fixed-to-fixed—
foreign currency
to foreign
currency
Session 7: Module 4, Chapter 10 - 39
Discussion Question
Which of the following is similar to TARGET2
in that it is an RTGS, has online hours of 9:00
p.m. to 6:30 p.m. EST but banks establish
earlier cutoff times as needed, and is
regulated under Fed Reg J and UCC Article 4A?
a) ACH
b) Fedwire
c) FedGlobal
d) CHIPS and SWIFT
Answer: b
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Session 7: Module 4, Chapter 10 - 40
Clearing and Settlement of a Wire
Transfer
1
Company A
(sender)
7
Company B
(receiver)
2
Bank A
(sender’s
bank)
6
Bank B
(receiver’s
bank)
3
4
5
FEDERAL
RESERVE BANK
Reserve accounts
value transfer
From Bank A
Bank
Bank
A To Bank B B
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1. Initiates wire
transfer.
2. Determines funds
availability and
debits Company A’s
account.
3. Makes wire transfer
via Fedwire.
4. Fed debits Bank A
and credits Bank B.
5. Fed notifies Bank B
of transfer.
6. Bank B credits
Company B’s
account.
7. Notified of wire
transfer received.
Session 7: Module 4, Chapter 10 - 41
Types of Wire Transfers
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Session 7: Module 4, Chapter 10 - 42
Discussion Question
Which of the following is designed to reduce
the risks of correspondent banks unknowingly
facilitating illicit activities (e.g., money
laundering)? (Select all that apply.)
a) SWIFT MT202 COV with two special
sequences
b) Fedwire CTR and CTP message format
c) National Book-Entry System (NBES)
delivery-versus-payment (DVP)
Answer: a and b. The question relates to
cover payments.
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Session 7: Module 4, Chapter 10 - 43
Clearing House Interbank
Payments System (CHIPS)



Bank-owned, large-dollar funds transfer
network operated by The Clearing House
Real-time intraday net settlement system
providing finality of payment at time of
release
Clearing and settlement (in USD):


CHIPS member banks fund New York Fed
CHIPS accounts (transfers received/
authenticated midnight to 5 p.m.)
CHIPS formats: Fedwire, SWIFT

Dollar volume is 80% of Fedwire volume
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Session 7: Module 4, Chapter 10 - 44
Discussion Question
What are some alternative payment
instruments used in the U.S. other than ACH,
Fedwire and CHIPS?
Answer:
 Money transfer services storefronts or
online
 Alternative payment services providers to
send payments to employees or
contractors, collect payments or get
funds across borders quickly (primarily
for persons without access to a banking
system)
 PayPal, a subsidiary of eBay
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Session 7: Module 4, Chapter 10 - 45
Participants in a Credit Card
Transaction





Cardholder
Card issuer
Merchant
Merchant
acquirer
Acquiring
processor


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Issuer processor
Network operator
Session 7: Module 4, Chapter 10 - 46
Credit Card Payment Clearing Process
Authorization
1-A
Merchant
1-B
1-D
3
Merchant
Bank
2-A
2-C
1-C
Consumer
Account
2-B
3
Clearing
1-D
2-A. Charges sent for
clearing by merchant.
1-B
2-B
Issuing
Bank
3
1-D
1-A. Credit card presented
to merchant for
purchase.
1-B. Authorization request.
1-C. Hold placed on credit
limit.
1-D. Authorization granted.
Credit Card
Network
1-B
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2-B. Transaction data
routed to bank.
2-C. Hold converted to
charge.
Settlement
3. Funds remitted
through network to
merchant.
Session 7: Module 4, Chapter 10 - 47
Discussion Question
Describe the Payment Card Industry Data
Security Standards (PCI DSS).
Answer:
 Worldwide information security standard
defined by PCI Security Standards Council
 Created to help organizations that process
card payments prevent card fraud through
increased controls
 Applies to all organizations that hold, process
or exchange cardholder information from
cards with a major card brand logo
 Noncompliance can result in fines or
termination of payment card acceptance
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Session 7: Module 4, Chapter 10 - 48
Debit Cards and Other Varieties of
Payment Cards
Debit cards


Both types debit
funds from
cardholders’ checking
or savings accounts
Signature-based


Visa, MasterCard,
Discover
PIN-based
PIN is entered
 Facilitated by
network operators

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Other







Purchasing cards
(procurement cards,
p-cards)
Travel cards
Ghost cards
Departmental (unnamed) cards
Single-use cards
Stored value cards
(SVCs)
Smart cards
Session 7: Module 4, Chapter 10 - 49
Over-the-Counter Collection
Systems
Merchant outlets
Payment
instrument
Intermediaries
Cash
Field bank
deposit
Cash
Armored car
virtual vault
Field collections
Headquarters
RDC
Branch offices
Check
conversion
Telephone
ACH - TEL
Mail order
Cards
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Merchant
processor
Collector/
payee
Concentration account
Receiver of
payment
Balance and
transaction
data to
treasury
function
Customer
payment
data to
credit/
receivable
function
Session 7: Module 4, Chapter 10 - 50
Mail and Electronic Collection
Systems
Company
processing
center
Electronic
Lockbox
Web-based
sales
Bank
Payment
Intermediaries
instrument
Merchant
Cards
processor
Checks
Collector/
payee
Check 21 imaging
Check conversion
ACH
Cards
ACH - WEB
ACH
Wire
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Merchant
processor
Concentration account
Mail
Receiver of
payment
Balance and
transaction
data to
treasury
function
Customer
payment
data to
credit/
receivable
function
Session 7: Module 4, Chapter 10 - 51
Mail-Based Collection Systems
Company processing
center
 Company does its
own processing and
deposit preparation.
 Traditionally used for
large volume of
relatively small-dollar
amounts.
Lockbox


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Financial institution
or third party receives
payments at specified
post office (lockbox)
addresses, processes
remittances and
deposits them in
payee’s account.
Electronic lockbox.
Session 7: Module 4, Chapter 10 - 52
Company Processing Center:
Steps for Checks
Receiving and opening mail
Separating payment (check) from remittance advice
Forwarding remittance advice, amount and date of payment to A/R
department
Preparing check for deposit (endorsement and deposit preparation) or, for
consumer payments, preparing check for conversion into ACH debit
Transporting check to organization’s deposit bank, employing RDC or
converting eligible check to ACH debit
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Session 7: Module 4, Chapter 10 - 53
Discussion Question
Which of the following changed the equation
that traditional in-house processing was
performed only by either very small
companies with few checks or large
companies that could justify the equipment?
a) Unique ZIP code
b) Virtual vault
c) Imaging technology and RDC
d) Electronic lockbox
Answer: c
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Session 7: Module 4, Chapter 10 - 54
Lockbox Collection System
Advantages







Reduced mail,
processing and
availability float
Efficient processing
Higher security
Control and record
keeping
Uninterrupted service
Scalability
Proper segregation of
duties
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Disadvantages

Reduced operational
control over:
 Collections operation
 Customized processing
 Payments to respond
to customer inquiries
Session 7: Module 4, Chapter 10 - 55
Types of Lockboxes
Wholesale Process low-volume, large-dollar B2B payments
that can be matched to specific invoices;
emphasize float reduction and timely handling of
information related to invoices.
Retail
High-volume, small-dollar C2B payments that
frequently involve installments or recurring
payments and scannable remittance documents;
cost reduction more critical than float reduction.
Hybrid
Combine features of wholesale and retail
lockboxes; sometimes called wholetail; process
both B2B and C2B payments; processor
aggregates remittance data and transmits it to
the company.
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Session 7: Module 4, Chapter 10 - 56
Wholesale Lockbox Processing
1
Mail
check
6
Check
Post
office
2
3
4
Pick up
mail
Sort
mail
Open
mail
7 Capture
image
of check
8 Endorse
and encode
check
Image of check
Envelope
and
contents
Batch
and
balance
11
Data
capture
Create
data file
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9
Prepare
deposit
Examine
check 5
10
Send to
proof and
transit
Send
deposit
information
Update
cash
position
Send
remittance
information
Update
accounts
receivable
Session 7: Module 4, Chapter 10 - 57
Discussion Question
Why would a hybrid lockbox be an appropriate
selection for a utility company?
Answer:
A hybrid lockbox could be configured to
handle consumer customers who
usually return standard (scannable)
remittances that can be processed
automatically and business customers
who usually remit documents requiring
manual handling.
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Session 7: Module 4, Chapter 10 - 58
Lockbox Selection

Cost/benefit analysis: Lockbox versus company
processing center.


Net benefit is reduction in opportunity cost of float
adjusted for difference between lockbox charges and
internal processing costs (dollar amount, total
collection time for items, and current opportunity cost
of funds).
Compare differences in collection (mail,
processing and availability) float.
Collection or lockbox study estimates float savings
(endpoint analysis).
 Combine intercity mail time studies with availability
schedules from each bank.


Compare differences between fixed and variable
costs.
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Session 7: Module 4, Chapter 10 - 59
Collection Process Improvement

Electronic
payments provide:
Predictability of
settlement timing
 Flexibility of
directing payments
automatically
 Ease of
transmitting
customer
remittance
information
 Reduced risk of
fraud


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



B2B ACH adopted
more slowly than
C2B ACH
EBPP
EIPP
Universal Payment
Identification
Codes (UPICs)
Electronic Billing
Information
Delivery Service
(EBIDS)
Session 7: Module 4, Chapter 10 - 60
Discussion Question
What are common consumer applications for
pre-authorized debits?
Answer:
 Mortgage payments
 Loan installments
 Insurance premiums
 Utility payments
 Broad range of other one-time and
recurring payments of fixed amounts
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Session 7: Module 4, Chapter 10 - 61
NACHA’s Secure Vault Payments





The only customer requirement is to be
registered online banking system users.
Consumers do not have to send their bank
account information to the collecting
organization.
The collecting organization does not have to
follow PCI DSS protocols, as with card
payments.
For merchants using Secure Vault, payments are
guaranteed within 24 hours, with no NSFs or
declines.
Rates on Secure Vault payments are significantly
lower than traditional payment cards, especially
for bill payment or for G/NFP collections.
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Session 7: Module 4, Chapter 10 - 62
Disbursement Products






Controlled disbursement
Zero balance account (ZBA)
Payable through draft (PTD)
Positive pay
Multiple drawee check
Imprest account
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Session 7: Module 4, Chapter 10 - 63
Controlled Disbursement


A bank service
providing sameday notification of
the amount of
checks that will
clear against the
account that day.
Daily clearings
usually available
by early or midmorning.
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
Adequate funds
must then be
provided to the
account to cover
the value of the
checks presented.
Session 7: Module 4, Chapter 10 - 64
Zero Balance Account (ZBA)



Disbursement account
on which a company
issues checks, ACH
debits or wires—even
though account balance
is kept at zero.
A transfer of funds from
a master account
(located in the same
bank) covers all debits
against a ZBA.
May be multi-tiered so
multiple divisions/
subsidiaries can write
checks on separate
accounts all funded by a
master account.
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
Specific purpose multitiered ZBAs can protect
concentration account
against fraud through:
Debit blocks for
deposit-only ZBAs
 Check blocks for
ACH-only ZBAs

Session 7: Module 4, Chapter 10 - 65
Discussion Question
What is the benefit of a company having
multi-tiered ZBAs for payroll and accounts
payable?
Answer:
The cash manager may control the
balances and funding of a master
account and the associated ZBAs as if
they were all one large account. This
reduces excess balances and the need
for multiple manual transfers.
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Session 7: Module 4, Chapter 10 - 66
Positive Pay






Used to combat check fraud.
Company transmits file of check
information to the disbursement bank.
Bank matches numbers and amounts and
only pays matches.
Teller positive pay.
Reverse positive pay.
Fraud that cannot be prevented:
Fraudulent endorsement
 Holder in due course

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Session 7: Module 4, Chapter 10 - 67
Other Disbursement Products
Payable
through draft
(PTD)
A payment instrument popular for
insurance claims with multiple
signers; can be ACH debits.
Multiple
Checks that can be presented for
drawee check payment at more than one bank;
also known as payable if desired
(PID) checks.
Imprest
account
An account maintained at a
prescribed level; periodically
replenished.
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Session 7: Module 4, Chapter 10 - 68
Electronic Disbursement Methods




Direct deposit
Purchasing/procurement cards
Federal and state tax payments
Electronic benefit transfers and
payroll cards
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Session 7: Module 4, Chapter 10 - 69
Outsourcing Products




Freight
payments
Payroll services
Integrated or
comprehensive
accounts payable
Payment
factories
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Session 7: Module 4, Chapter 10 - 70
Discussion Question
A company supplies its bank with an
electronic file of all payments issued, and the
bank matches the items paid against the file.
This is the same file used for positive pay.
Which of the following is this service?
a) ARP partial reconciliation program
b) ARP full reconciliation program
c) Stop payments
d) High-order prefix sorting
Answer: b
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Session 7: Module 4, Chapter 10 - 71