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Collection Model

The Phoenix-Hecht Collection Model™ is a highly sophisticated, yet easy-to-use, analysis tool. The model utilizes a true optimization calculation designed to analyze or fine-tune a corporation's current collection system and to evaluate lockbox alternatives. This optimization model selects the best lockbox cities, individual processors and/or lockbox networks for the corporation's remittances. Any type of remittance activity can be evaluated by the model.

The model's optimization routines and degree of accuracy are determined by the data available for optimization. The Phoenix-Hecht Postal Survey™, optional Bank Availability times and Retail Remittance data comprise the three major databases supplied by Phoenix-Hecht for use by the Collection Model™. Updated databases are delivered to licensees twice a year. A basic license requires a subscription to Postal Survey™ data for all surveyed remittance processors. The optional Bank Availability Database, containing individual bank availability schedules, can be added to provide the highest level of computational accuracy in any type of remittance collection analysis. Postal Survey™ data combined with Availability data is the best measurement of what a corporate customer can expect in terms of total float especially in a wholesale lockbox. For subscribers electing not to purchase the Availability database the Collection Model™ uses Postal Survey™ data and local origination check clearing assumptions. Use of the Retail Remittance data base provides an accurate float analysis for lower dollar payments.

The Collection Model™ provides complete data input, data retention and optimization flexibility along with multiple reporting options to present the most complete analysis and presentation possible. In addition the full resources of Phoenix-Hecht are available to assist licensees in study set-up, model usage and results interpretation.

Use of the Collection Model™ addresses two key concerns of a remittance study: the selection of processing sites and the assignment of customers by geographic area to lockbox locations. Principal benefits derived from a study are a reduction in float and a possible reduction in processing costs. The Collection Model™ can also evaluate the current collection system, determine the value of a lockbox network, or optimize within the current or an alternative processing system.

Several steps are involved in setting up the typical remittance study. Some questions to be considered are:

  • To what degree is the client willing to change the current system?
  • Are more or fewer lockboxes sought?
  • What remittance processors are being considered?
  • Are there existing bank relationships which cannot be altered?
  • What assumptions need to be verified before beginning?
  • What is the current level of controlled disbursing?
  • Are there any special processing requirements that must be addressed?

The next phase is data collection. One of the most important parts of a lockbox study is the remittance sample. You must decide whether to obtain a complete sample of individual checks for some study period or whether aggregate data is sufficient.

Improper selection of the sample is the largest single cause of error in a lockbox study. The sample should depict the typical volume level and geographic mix of revenue derived from the customer base. Unusual items, such as one time payments or intra-corporate items, should be removed. All large dollar items should be fully represented in the sample. The time period during which the sample is taken does not have to be continuous, but it should be carefully selected and must represent a complete billing cycle and capture remittances from all significant customers.

The Collection Model™ without the Bank Availability database option derives all of its data from the Postal Survey™. The availability component of total float is based on the assumption that all remittances are drawn on banks local to the mailing address. Thus, the model cannot detect or compensate for the presence of remote disbursing. The inability of the model to capture specific drawee bank information limits the applicability of the model in some lockbox optimizations. It is recommended that it not be used for wholesale lockbox studies that show significant (more than 25%) remote disbursing in their customer base. Phoenix-Hecht recommends that such studies be performed using the Bank Availability Database. Since retail lockbox systems are rarely impacted by remote disbursing, but are influenced by processing considerations, the Collection Model™, with a special Retail Mail Analysis database, can be used for retail lockbox studies of any size.

The Postal Survey™ Report breaks out mail and availability float, the two components of total float. The term mail time can sometimes be misleading. While mail times are measured in elapsed hours they are reported in whole days. The whole day measurement reflects the calendar days from day of mailing to banking day of ledger credit. The whole day measurement is consistent with what corporations observe as mail time: the number of calendar days between the mailing date and the day the deposit is reflected on their bank statement.

The Collection Model™ will automatically determine which features can be used based on data captured in the check sample and the licensees data subscriptions. Agreement between the Collection Model™ and a version without the optional Bank Availability database is entirely check sample dependent and cannot always be predicted. In general, with a 75% or higher level of local disbursement activity, the probability of the models study of identical data yielding the same results is very high. The decision whether to analyze drawee bank information (that is transit endpoints requiring the Bank Availability data) in a lockbox analysis is one that must be made by the analyst and the corporation based upon considerations of cost, sensitivity to float, accuracy, and implementation limitations.

Through a lockbox study, one can perform a number of investigations to evaluate how well the current collection system is working and suggest the best possible system, or to create alternative options that reflect restrictions imposed by the client. The Phoenix-Hecht Collection Model™ with the appropriate data bases can model any remittance processing scenario and optimize alternatives.