Page 154 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 9: Cash Management System

10. Positive pay: Positive pay is a service whereby the company electronically shares its Notes
check register of all written checks with the bank. This system dramatically reduces cheque
fraud.
11. Reverse positive pay: Reverse positive pay is similar to positive pay, but the process is
reversed, with the company, not the bank, maintaining the list of cheques issued. In
reverse positive pay, the bank sends that file to the company, where the company compares
the information to its internal records. The company lets the bank know which cheques
match their internal information, and the bank pays those items. The bank then researches
the cheques that do not match, corrects any misinterprets or encoding errors, and
determines if any items are deceitful. The bank pays only “true” exceptions, that is, those
that can be settled with the company’s files.

12. Sweep accounts: Sweep accounts are generally offered by the cash management division
of a bank. Under this system, excess funds from a company’s bank accounts are automatically
moved into a money market mutual fund overnight, and then moved back the next morning.
This allows them to earn interest overnight.
13. Zero balance accounting: Zero balance accounting is pretty much like a hack. Companies
with large numbers of stores or locations can very often be confused if all those stores are
depositing into a single bank account. It would be impossible to know which deposits
were from which stores without referring to the images of those deposits. To help rectify
this problem, banks developed a system where each store is given their own bank account,
but all the money deposited into the individual store accounts are automatically moved
or swept into the company’s main bank account. This allows the company to look at
individual statements for each store.
14. Wire transfer: A wire transfer is electronic transfer of funds. Wire transfers can be done by
a simple bank account transfer, or by a transfer of cash at a cash office. Bank wire transfers
are often the most expedient method for transferring funds between bank accounts. A
bank wire transfer is a message to the receiving bank requesting them to effect payment
in accordance with the instructions given. The message also includes settlement instructions.
The actual wire transfer itself is virtually instantaneous, requiring no longer for
transmission than a telephone call.
Cash management services can be costly but usually the cost to a company is outweighed by the
benefits: cost savings, accuracy, efficiencies, etc.

Task Make a report on the concept, evolution and need of Cash Management Services in
India.

Self Assessment

Fill in the blanks:

9. .......................... is usually offered by the cash management division of a bank.
10. Lockbox are for companies with ..........................
11. .......................... is a service whereby the company electronically shares its check register of
all written checks with the bank.
12. In .......................... excess funds from a company’s bank accounts are automatically moved
into a money market mutual fund overnight, and then moved back the next morning.
13. A .......................... is electronic transfer of funds.

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