Cash & Liquidity Management

Question Answered: Best practice: cheque deposit

Published: Nov 2015

Checkbook on table with pen and iPad

This issue’s question

“What is best practice when implementing electronic cheque deposit scanners? What processes do corporates have in place to fully leverage this product? Also, once the cheques are scanned, for how long should they be kept?”

Bob Meara, Senior Analyst, Banking, Celent

Bob Meara

Senior Analyst, Banking
Celent

It is first important to point out that most bank electronic cheque deposit products are browser-based options that are offered as part of online cash management portals. Therefore, like other functions of the cash management portal, specific user privileges are determined based on entitlements that either the bank or a corporations’ administrator decides. We think that best practice involves: the separation of duties, ensuring that the person checking and approving the deposits is someone other than the person scanning the cheques; guaranteeing that the portal is configured so that individual users can only deposit into specific authorised accounts; scanning items early in the day so that the deposit can be submitted before the bank’s cut-off for next day availability; treating the cheques as you would any confidential information and setting scanned items aside so they are not inadvertently scanned for a second time (although most electronic deposit products check for previously deposited items).

Desktop scanners offered with electronic cheque deposit products are simple and easy to operate. Typically, bank-provided drivers are installed on the desktop computer which will be used to make deposits. If multiple scanner choices are offered, choose the one with a capacity best suited to your expected needs. Most corporates don’t get that many cheques, so a relatively inexpensive scanner will work just fine. Higher priced scanners with higher throughput (items per minute) won’t make much of a practical difference in most cases.

After scanning cheques for deposit, image analytics reads the information off each cheque, requiring very little manual information entry. Occasional items do need correction, however. Typically this is best done immediately after scanning the items, so the original cheques are available if needed. Beyond getting quickest availability of funds as mentioned above, the next thing is to apply cash efficiently. Check with your bank to see what capabilities they offer to associate payment information to open accounts receivables. Often, capabilities are limited but still can be effective in applying cash the same day the cheque is deposited, with little operator effort.

Some banks provide guidance, but we’re not aware of any regulatory requirements for cheque retention. In the US, most firms destroy the items after 30 days. Since the images are available online and banks provide deposit confirmation well within that time frame, there is no practical reason to hold on to the cheques longer than one statement cycle. Keeping them on-hand increases the risk that sensitive information will be compromised or the items will be accidentally deposited a second time.

Rodney Gardner, Head of Global Receivables in Global Transaction Services, Bank of America Merrill Lynch

Rodney Gardner

Head of Global Receivables in Global Transaction Services
Bank of America Merrill Lynch

Remote deposit capture with desktop scanners offers companies the potential to replace the traditional cheque deposit process. By following the established deposit compilation and preparation processes, businesses can replace time-consuming trips to their bank by simply scanning and electronically transmitting the cheques.

But before implementing a remote deposit capture service, we recommend companies determine the level of service they’ll need from their bank. We’ve created the following list to help companies clarify their requirements and expectations:

  • Determine the monthly volume of checks to be scanned. This information will help companies choose which type of scanner which will best meet their needs. Scanner sizes run from single feed for very low monthly volumes to scanners that can handle more than 6,000 items per month.

  • Obtain the number of sites that will be required to transmit deposits. With this information companies will know how many scanners will be required to effectively process their work and allow them to calculate scanner service fees where applicable.

  • Companies should determine whether they want one person to be able to prepare, scan, review and release each deposit or whether a supervisory review prior to transmission is preferred. Most remote deposit systems allow for the breakout of responsibilities.

  • Understand the type of information that should be retained. Banks have various options around information reporting and storage, so companies should take the time to explore their options. Important factors to consider include: whether images of the deposited items are needed; whether data reports are required; if the image archive requires CD-rom or transmission services; and whether short or long-term storage of the data and images is needed.

  • Gather the information around your company’s technology and internet guidelines. Technology concerning operating systems, browsers and scanner drivers is constantly upgrading and changing. Companies should enlist the knowledge of their IT staff regarding internal firewalls, security and operating system requirements upfront so there are no delays once installation has begun.

  • Utilise training resources provided by the bank. Our customer service records indicate that clients who take advantage of product training experience far fewer difficulties once using the service. Companies should ask their bank whether it offers training, and if so, whether the training is web-based, instructor led, conducted on-site, or a combination of each. Determining the appropriate time to take the training will also be significant to an effective implementation.

  • Review the bank’s RDC user guides and other documentation. These materials will outline other important tasks to plan for. One such task is the retention and destruction of scanned checks. Bank of America Merrill Lynch recommends clients safeguard original items for 14 days using reasonable commercial standards for storage. Reasonable standards include, but are not limited to, storing the items in a secure location with limited access. Items should be destroyed using a cross cut shredder after 14 days or when all reasonable attempts to collect on the item have been made.

The time invested in detailing this inventory of needs will lay the groundwork for a smooth implementation of RDC into a company’s treasury department.

Francesco Grasso, Corporate Marketing Manager, Panini

Francesco Grasso

Corporate Marketing Manager
Panini

The most recent RDC solutions are entirely web-based, and a part of banks’ corporate banking service suites. Drivers and software libraries for the cheque scanners are usually downloaded and installed upon service activation and the user does not have to worry about application updates, as the application is maintained by the bank as part of online services, instead of residing on the local workstation. Occasionally, an operating system (OS) update or a substantially incremental application update may require the user to update the scanner drivers/application program interfaces (APIs). But a new generation of cheque scanners is emerging which are no longer dependent on APIs and OS,’ and will make integration with web-based RDC applications more straightforward and hassle-free, and even allow the scanner to operate with a mobile device (tablet or smartphone) instead of a desktop computer.

Once installed, the cheque scanner should be taken care of as a normal piece of office equipment, but since cheques are a form of payment the user may want to make sure that its functionality is maintained at an optimised level. This could include periodically cleaning the paper path, image cameras and magnetic ink character recognition (MICR) read head – operations which can be carried out with normal cleaning methods and supplies, or with special cleaning cards which are recommended especially for batch scanners. Documents must be stored according to the agreement between bank and customer, or delivered to the bank in the appropriate time frame if national laws or the agreement requires corporates to do so.

Using RDC instead of carrying cheques to the local bank branch or ATM is just the first step, allowing to save time and fuel as well as improving the availability right from the start. A mid-term possibility for the business RDC user is to evaluate whether all the banking relationships they have in place are really needed; thanks to the elimination of geographic constraints RDC allows, there may be room for consolidation.

If RDC is run as a stand-alone solution, deposit and posting survive as two separate actions, which is a missed opportunity. Improved use of RDC allows corporates to export deposit data from the web app into a format which can be merged with the accessory data the accounting system requires – such as customer identification and invoice number, therefore facilitating the posting phase. More advanced payments implementations allow to extract such data automatically from remittances and possibly even integrate the images of scanned documents – both remittances and cheques – with a document management system used for archive and retrieval.

In terms of how long the cheques should be kept, it depends on local law and, in countries where the law does not mandate a term, on the agreement between bank and customer. Italy, for example, is about to implement a system which requires storage of physical cheques for six months, despite the image acquiring legal value. RDC users are likely to be requested to forward their cheques to the bank anyway (but with no hurry because the bank will not wait for the paper to arrive to carry out the deposit) or to store those cheques on the bank’s behalf for six months. In the US – which adopted image-based truncation over ten years ago with no mandatory paper storage term – agreements between individual banks and business customers are known to impose on the latter a storage term from as short as three days to as long as two months. The average ranges between 15 and 30 days – which is usually considered safe enough.

Next question:

“With OECD having presented its final BEPS Action Plan in October 2015, in what ways will its implementation impact the treasury departments of multinational companies and what should treasurers be doing now to prepare?”

Please send your comments and responses to qa@treasurytoday.com

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