Disbursements

Disbursements are defined simply as the payments made by a corporation. These payments include payroll, dividends paid to shareholders, trade payables (payments made to suppliers of goods and services), as well as other miscellaneous payments.

The company making the disbursements has some control of how and when payments are made. The paying company ("payor") may usually select the payment media used (cash, check, ACH, wire, etc.) and, to a reasonable degree, the timing of the payment. This section will focus on check disbursements.

Pricing
Controlled Disbursement services are utilized by a high percentage of corporate treasury managers. The pricing for disbursement services is very competitive. Large discounts are typically granted for even medium volumes.

Checks Paid Regular Chart

Quality Trends
The Phoenix-Hecht Quality Index™ is a statistically valid comparison of customer perceptions about bank performance. The Index rates two perceptions of the Controlled Disbursement product. Individual bank Quality Index™ measures must be requested directly from surveyed banks.

Check collection
According to the most recent Federal Reserve Payment Study nearly 9 million checks are created daily by businesses to pay other businesses (B2B). The vast majority of these checks are distributed by mail making the U.S. Postal Service a major factor in the payor-to-payee logistics. The checks are imaged by the payee or their designated lockbox bank and enter the check clearing system for transmission to the financial institution on which they are drawn. The final step is to move the value indicated on the check in the opposite direction (from the payor’s account to the depositor’s account). All of this movement of funds is accomplished inexpensively in one day or less. Checks continue to be preferred for business payments because of historical practices within industries as well as technical features of legacy systems, such as the integration of checks with information services and financial controls .

Check Fraud

Liability for check fraud rests on both banks and check issuers. The fraud loss will more often be borne by the party in the best position to have prevented the fraud.

If you discover you have been a victim of check fraud there are no simple, foolproof solutions for dealing with the situation. The first step should be to review your options with your bank.

For the protection against fraud you should purchase such bank services as positive pay, electronic reporting of checks-paid information, account reconcilement services, and conduct a physical review of paid items on a daily basis.

Treasury Managers should be familiar with the Uniform Commercial Code (UCC) Article 3, Negotiable Instruments and Article 4, Bank Deposits and Collections.

Additional publications about check fraud (Frank Abagnale).

Positive Pay as a fraud loss deterrent
A Positive Pay service should be purchased for every disbursement account. When checks are printed the check generation software creates a positive pay file. The file contains information such as check number, date, amount, and payee. This file is then transmitted to your bank. When a check is presented at your bank for payment, the bank first checks your Positive Pay transmissions to see if the check is valid. Only if the Positive Pay transmission matches the check details will the check be honored. The bank rejects:

  • checks not on the company's list,
  • checks that exceed a specific dollar amount, or
  • checks that carry dates long past (stale checks).

Check Imaging
Electronic imaging makes it possible to replace paper paid items with an accurate electronic representation and then store, retrieve, display, print and distribute the electronic image. Image Delivery Systems consist of image-based document processing products used to convert paper documents into digital images that can be stored, retrieved and delivered in a variety of manners. Images can be delivered to bank customers on CD-ROM media, faxed to customer locations, or displayed on PC's.

Reconcilement
This service aids you in the reconcilement of disbursement accounts by providing a list of all the checks paid during a given statement period. Additional detail on outstanding checks and exception items is available when you provide the bank with check issue information.

Integrated Disbursements

With the Integrated Disbursement service, your company creates and transmits a single electronic file of check, ACH, and wire payment instructions. The file contains complete amount, payee, address, and payment-type information. The bank validates file format, issues an electronic acknowledgment, processes and issues all payments, and releases remittance and payment advice information. With this service, clients have reduced the total cost of their payment origination operation without compromising control. (Process flowchart courtesy of Northern Trust)