Closely related to accelerated clearings, Improved Availability results from the ability to now make deposits earlier in the day. Most large banks offer availability schedules which vary depending upon time of deposit. The earlier a corporation can make the deposit at the bank, the better an availability schedule can be assigned to that deposit because the bank now has more time to process and clear the items.
As more banks begin to use image exchange for clearing, as well as other check-21 enabled products from the Federal Reserve and others, clearing capabilities and success rates will improve. Depending upon deadlines and a bank's clearing capabilities, it is now possible to achieve as much as 95% next-day availability on "transit" items (items drawn on banks outside the current Federal Reserve District). Of course, as of mid-2005, achieving the can be quite expensive, as indicated by the Fed's pricing, but for high-dollar checks, the business case often makes good sense.
Accelerated clearings and improved availability result in improved cash flow and working capital for your corporation. A quick way to gage the financial impact is to use your corporation's Weighted Average Cost of Capital (WACC). The WACC is basically a measure of the return your company generates on every dollar invested. The historical average WACC for the S&P 500 is approximately 15%. Using this figure, every $1,000 in accelerated cashflow (availability) results in a 60 cent benefit to that corporation. If that corporation deposits $1 Million daily, the annual benefit just from (total) availability acceleration would be over $150,000.00!
To learn a bit more about the Weighted Average Cost of Capital, click here. For a more in-depth article on why this (higher) rate calculation should be used, click here.
This one is quite simple: The faster an item clears, the faster you'll learn about return items. In general, this holds true, but there's always the exception to the rule. The check 21 legislation effectively added new reasons why an item could be returned, and new risks as well.
Items can now be returned due to poor image quality, either on the digital image, or the printed Image Replacement Document (IRD). Many banks are assigning this new return item risk to their corporate clients who use their Remote Deposit Capture Service through updated legal agreements. This makes some sense, since it is the corporation who is scanning the item. This is also why it is extremely important for a corporation to select a provider who helps them manage this risk through automated Image Quality Analysis tools which measure image quality at least twice: Once at the point of capture at the corporate location, and again at the bank processing center. A third check may be needed to check image quality of printed IRDs, if the bank service provider is clearing the items in that manner.
So far, it is too early to know what the impact of this type of return item risk is. As of October 2005, the Fed indicated they return less than 1/2 of 1% (0.005%) of items due to poor image quality, and the percentage continues to decline. From a legal risk standpoint, to our knowledge, no court cases have set any precedent as to the level of financial risk above and beyond the face amount of the check.
Once this issue is fully part of the check clearing process, we may very well see the benefits from earlier return item notification far outweigh the new risks of clearing items under Check 21.
Now that full truncation of checks is possible, substantial savings can be had from reductions in transportation expenses. We say "reduction" because there will be items which may be unsuitable and unable to be processed via Remote Deposit Capture, and therefore must still be deposited in paper form at a bank. The vast majority of items (99.5%+) will be able to be captured. Assuming your corporation previously had daily couriers depositing items, Remote Deposit Capture allows you to reduce your transportation needs substantially. Your corporation may now choose to utilize that courier now only once per week for the (very) few items which need to go to the bank in paper form.... an 80% reduction in transportation!
At a minimum, a corporation can save time and money by using a Remote Deposit Capture solution to eliminate: the time and expense of traveling to the bank, and the time spent balancing the deposit & associated keying. Additional benefits can be had by using a Remote Deposit Capture solution as both your remittance processing, and you financial transaction processing platform. The new check 21 legislation and new technologies allows for the convergence of these traditionally separate functions (Remittance Processing & Treasury Deposit Functions).
To learn more about unlocking additional value from Remote Deposit Capture, please download the following article which was published in the August 2005 issue of Document Magazine:
Remote Deposit Capture: Unlocking additional value through document & process re-engineering. (click on the link to download the pdf.)
Remote Deposit Capture can enable consolidation of banking relationships. No longer does a corporation necessarily need to have the local bank around the corner to make check deposits. With a Remote Deposit Capture solution, there are no longer geographic "footprints" for depository relationships. The combination of business portability and competition between banks for corporate deposit business will prove a windfall for corporations. Clearly, the larger the corporation and the more volumes of items to deposit, the greater the potential opportunity. Likely benefits of banking relationship consolidation include:
Lower Per Item Pricing: By consolidating your depository account relationships to fewer banks (possibly just a single bank), your depository bank should be able to provide a volume-based discount on your per-item charges. This holds true on both items deposited, as well as your return item fees, posting fees, etc.
Improved Availability: Similar to the benefits of volume pricing, larger banking relationships often are assigned "preferred" availability schedules.
Expanded Credit Relationships: As a corporation does more business with a bank, and with larger the balances / volumes in the accounts, the bank will be more interested in providing credit services.
Reduced relationship management costs: Bank account analysis, reconciliation and management can be a costly and time-consuming process. Reductions in the number of banking relationships will result in lower relationship management costs.
A more efficient corporate treasury: As a result of all the above mentioned benefits, your corporate treasury operations will simply be more efficient. Lower transaction costs, reduced funding rates, enhanced cash flows and consolidated banking relationships will result in a treasury department which has more time to focus upon productive efforts (as opposed to administrative efforts such as account reconciliation for many banking relationships) for the firm.
Reduced Photocopying Costs
Many corporations (and even international correspondent banks) photocopy checks received prior to depositing them at a bank. Often, this is done to help in reconciliation and deposit adjustment cases, sometimes this is a requirement written in the bank's deposit agreement. Either way, a corporation or correspondent bank can see substantial savings by using a Remote Deposit Capture service. For a corporation which processes 500 checks per day, assuming an all-in photocopy cost of just 5 cents per item, annual savings could be $6,300 for this example!