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Remittance Processing

Wholesale       Retail       In-House

Remittance processing can take various forms depending on the remittance size, return documents, and volumes. This topic section was designed to give the corporate treasury manager an overview of the various components which comprise the service, along with performance measures and other items of interest.

USPS Remittance Mail web site

Current issues in remittance mail
Extracts from Business Mailers Review

Complex Payments
Bob Murphy
Vicor
December 2005

Remittance Processing Providers by Location


Wholesale

Service Providers
Requests for Individual Provider Postal Survey Performance

Latest Postal Survey Trends
Results of the 2011-2 study.
Results valid through June 2012

All quiet, but …

It was months before network consolidation and all throughout the land, remittance mail was flowing, but… The 2011-2 Fall Phoenix-Hecht Postal Survey ™ produced results very similar to those seen in the spring survey. But this consistency belies the level of anticipation and concern from the remittance industry regarding consolidation. While the over-arching motivation, structure and philosophy of consolidation have been revealed, most operational details remain a bit off in the distance. Thus, the consistency of this survey speaks little to the presumed disturbances yet to come.

Visually, participants experiencing worse results outnumber those experiencing better in all three geographies of the chart below. In each aggregation, national, regional, and local, a bit over forty percent experienced deterioration while mid-twenty percent experienced improvement (improvement was actually just 19% for regional). However, for each aggregation, improvements, where seen, were substantially more significant than any deteriorations, and thus overall participant averages were statistically unchanged.

Improvements averaged about three hours in each geography, resulting in statistically significant total float gains for these recipients. But because deteriorating participants were more numerous, the overall participant average experienced rather trivial change.

Several factors complicated comparisons with the previous survey. We introduced 2010 Census data for population weighting; seven mail origination points changed due to USPS outbound consolidations, and an early snow storm wreaked some havoc in the Northeast toward the survey end.

Network Consolidation
Obviously, results of this survey are being overshadowed by the impending changes being planned by the USPS. We believe processors have three main risks associated with network consolidation.

Closing of Current processing plant: Several locations studied in the Phoenix-Hecht survey are being considered for consolidation (closure) into a different processing facility. The Postmaster General has agreed to a five-month moratorium until May 15, 2012 before any plant closings occur. For some locations, processors may have the option to continue to receive mail from the facility itself or at an alternate facility nearby. It is also possible that the pickup location for mail may move to the new processing facility in some cases. Even if delivery is preserved near the closing facility, remittance processors worry whether sufficient deliveries will be scheduled from the new processing location to provide the rich delivery pattern currently enjoyed.

Reduction of 2-day coverage area: Because of the new 8:00 a.m. destination plant critical entry time for delivery next day, USPS has less time to transport mail bearing a 2-day delivery commitment. In testimony given to the Postal Regulatory Commission, USPS indicates that 2-day delivery will have a maximum transportation allowance of about four hours, down from the current twelve hours. This reduction in the 2-day coverage area for each destination plant will result in more 3-day mail delivery for normal First Class. Remittance recipients will be less impacted by these standard changes since a remittance sort plan will run continuously throughout the day. Thus a letter mailed Monday with a delivery address that is eight hours away from point of origin will reach the destination plant too late for the Tuesday 8:00 a.m. critical entry deadline for normal First Class Wednesday delivery. If it is a remittance piece, however, it can flow straight to the remittance sort plan and still be received by the processor on Tuesday. In fact, even though its First Class standard changed from 2-day to 3-day with consolidation, remittance recipients may still receive the piece just as they did prior to consolidation.

Shift in time of day delivery: It seems logical to believe that some transportation logistics will change in response to the new network-wide 8:00 a.m. deadline. Because of this, remittance mail could see a shift in when volumes are processed. In particular, wholesale lockbox addresses, with unique or shared unique zip codes, usually require only a single destination sort operation. In the new plant schedule, this could very likely happen later morning or perhaps early afternoon. In current plant operations, this is a period of low delivery volume. Thus processors may be improperly staffed for the new pattern of delivery volume. Processors want to know, in fact need to know, just how dramatic the volume shift will be, when it will begin happening and how long it will take to evolve into a stable, repeatable delivery pattern. This phenomenon will occur regardless of whether a destination facility is consolidated. And at this point, answers remain off in the future until transportation is reconfigured.

Individual bank results are available from participating processors or can be requested from this web site.

The Postal Survey is the leading independent mail time survey for the treasury management industry. This survey, conducted in late October and early November 2011, measured mail from 170 originating cities into approximately 90 sites in 32 destination cities. For purposes of the executive summary, Phoenix-Hecht® publishes results based upon all originating mail (national) to a receiving site or city, mail originating from the receiving site’s or city’s region (approximately one-quarter of the nation), or mail from the six to ten originating cities closest to the receiving site or city (local). Individual originating city results are weighted by population to achieve each of the “regional” results (national, regional, and local). Mail hours and mail days do not directly correlate since mail days are stated as banking days dependent upon ledger credit.

Methodology used to conduct the Phoenix-Hecht Postal Survey
Postal Survey is an objective, carefully monitored, statistically validated measurement of total float in a remittance collection system. Postal Survey results are calculated using statistical techniques designed to simulate the corporate lockbox experience.

Lockbox location site selection technology
White paper describing the use of The Collection Model and affiliated databases

Product Usage
The use of wholesale lockbox service has been relatively stable over the past few years. Historically, wholesale lockbox was considered a "large corporate" service but companies of all sizes can realize important benefits from the service.
Wholesale Lockbox Usage

Service Pricing
The pricing of wholesale lockbox services is generally quoted in an unbundled fashion because of the variations of processing requirements. On a standardized account analysis service code 050100 represents the per item cost of processing the check and invoices received in a wholesale lockbox.
 
Service Pricing Chart

The Blue Book of Bank Prices® Executive Summary
Actual prices paid for the most common cash management line items
Order your copy of the only compilation of actual prices paid by corporations for services.

Remittance Math
Simple calculations from an account analysis and bank statement over time can detect increasing or decreasing float performance. A company should track monthly such figures as; average daily float, average collected balances or average float as a percentage of ledger balance (account being monitored should only contain lockbox activity). Over time an acceptable level of float should be experienced if all systems are functioning properly.
Float Factor Tracking
Observations outside the norm (either above or below average) indicate a need for further investigation. Points above the established norm can be an indication of major deposit deadlines being missed due to delayed mail or a problem in processing. Points below the established norm may indicate a backlog of processing being held until the next day.

Average Days to Collect
Float Factor Calculation

Mail Time Measurements
An explanation of the factors that can cause differences between mail time as measured by Phoenix-Hecht and mail times observed in a lockbox study.

Importance of wholesale lockbox features
Importance of Wholesale Lockbox Features Chart
Quality Trends

Phoenix-Hecht Quality Index
The Phoenix-Hecht Quality Index is a statistically valid comparison of customer perceptions about bank performance.

Speed of Processing

Accuracy of Processing and Reporting

BAI Quality Measures
The BAI quality measures are an indication of the relative production error rates experienced in the banking "factory." This white paper explains the measurement process.

Measuring Modeling and Monitoring Your Lockbox
An in-depth discussion of how mail moves through the postal system, how mail times and availabilities are measured by Phoenix-Hecht, how to recognize the need for a lockbox study, how to approach doing a lockbox study, and how to monitor your lockbox performance. Booklet is 50 pages. PDF file has an index.

Image Processing
The utilization of digitalized image processing can improve receivables processing by routing documents electronically for clarification to resolve exceptions, locate specific payments quickly to apply cash and approve credit, and reduce paper storage costs.

Imaging is the creation of a digitalized picture of an object such as a check or invoice which can be displayed, enlarged, annotated, duplicated, stored, routed or indexed for future use. In a lockbox environment, imaging is used to capture pictures of checks, envelopes, invoices, remittance advices and correspondence.
Images courtesy of Bank of America

Most image based systems can be delivered via the Internet or on a CD-rom. Companies should work with their bank to develop an imaging strategy. To get the most benefit from the investment, internal work flows may need to change.


Retail

Request Retail Mail Times

Retail Service Providers
Requests for Individual Provider Postal Survey Performance

The cost of processing retail remittance, while driven primarily by transaction fees, also has a float impact that should not be overlooked. In a wholesale lockbox, float benefits have long been easy to measure. Until recently, float has been difficult to quantify for a retail remittance processing site. Phoenix-Hecht, best known for its Postal Survey (a semi-annual study of wholesale lockbox times), also provides an analysis of retail mail float for corporations


The Retail Mail Analysis has total float times based on difference processing scenarios. As a guide a corporation should use a higher processing assumption for larger volume lockboxes.

ARC or Check 21 to Collect Payments?
A white paper by Phoenix-Hecht

Is ARC a Good Collection Method For My Company?
A white paper from J. William Murray, eBusiness Executive Professor,
Towson University, Towson MD

Electronic re-presentment of returned checks
Any firm that accepts checks in payment is eventually faced with trying to collect on a "returned item".

Pricing
 
Unencoded Checks Other Fed TMA 100224

In-House Processing

Hardware & Software Providers

RT Lawrence Corporation
www.rtlawrence.com
Metavante Image Solutions
www.metavanteimage.com
BancTec
www.banctec.com
PurePay
www.pure-pay.com
Deluxe Electronic Payment Systems
www.deluxe.com
J & B software
www.tmsimage.com
NCR Corporation
www.ncr.com
Wausau Financial Systems
www.wausaufs.com

Retail Lockbox Processing Service Providers
Listing of retail lockbox processing service providers from TransactionDirectory.com, "the premier web site for locating news, information, vendors, services and products for electronic and paper based transaction processing".

The Blue Book of Bank Prices® Executive Summary
Actual prices paid for the most common cash management line items
Order your copy of the only compilation of actual prices paid by corporations for services.