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November 17, 2015

HTMA leaders representing the organization at the annual AFP conference in Washington D.C.

Left to Right: Shawn Mire,
Lee-Ann Perkins, Sherra Small

Financial Flash

One Cards: More Than Just a Single Piece of Plastic
Lynn Larson, CPCP, NAPCP Education Manager
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A One Card program most often includes "P-Card-like” purchases (i.e., goods and services), travel and entertainment (T&E) expenses, and (possibly) fleet-related expenses. An employee only needs to carry one piece of plastic. But there are additional drivers, beyond simple convenience for cardholders, that fuel the debate surrounding One Cards.
When discussing One Cards internally, consider three top-of-mind issues: management of MCCs and related controls, corporate vs. individual liability, and insurance protections. Once you unravel the complexities, you can begin to define the best mix of payment types for your organization. Start with a One Card overview and then, for members, walk through these considerations:

• One Card Program Characteristics
• Potential Benefits of One Cards
• Potential Challenges or Drawbacks of One Cards
• The Liability Debate
• Tax Compliance
• Opposition to One Card Programs
• In Favor of One Card Programs
• Questions to Aid the Decision

Further, a recent NAPCP poll, "What is Your Organization's Experience with One Card Programs?” shows the top five drivers for implementing One Cards. Curiously, poll results (open to members and subscribers) show that many organizations with One Card programs may not know what percentage of cardholders actually use the cards for both types of purchases (goods/services and T&E). This represents a program management improvement opportunity. Ensuring meaningful overlap between employees who require Corporate Travel Cards and those who require Purchasing Cards and/or Fleet Cards is critical to supporting the business case for a One Card program.

Supplier Finance Advantage: Companies see payables strategies as a way to generate returns as well as to support their suppliers.
John Hintze
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While supply chain finance (SCF) programs are still relatively rare—only about 200 U.S. companies are thought to have them in place—such programs are gaining momentum in the wake of the financial crisis as companies seek to extend payment terms without putting suppliers at risk and, perhaps, even bolster their own income. A.J. Cederoth, CFO of Navistar International, a $13.9 billion manufacturer of heavy vehicles, says the company launched its SCF program this year as a way to strengthen its suppliers’ working capital. The program also fine-tunes payment terms, allowing Lisle, Ill.-based Navistar to focus on product costs in negotiations with suppliers.

“We have our platform up and running, and we’re working through the administrative and legal hurdles to bring more suppliers on board,” Cederoth says, adding that Navistar expects significant increases in the number of suppliers using the platform, including those in Latin America. “I definitely think suppliers are more interested in SCF than even a year ago,” he says.

Outdoor gear retailer Recreational Equipment (REI) is building a case to replace the sliding-scale discount program in its accounts payable platform with an automated SCF platform, though it has yet to choose a vendor to power it, says Russell Paquette, treasurer at the Kent, Wash., cooperative with $1.4 billion in 2011 revenue.

“SCF funding can help shore up temporary cash flow issues for the supplier while providing a discount to the buyer that, when annualized, eclipses what most cash-rich companies are able to earn on their short-term investments,” Paquette says.

In fact, companies increasingly view payables strategies such as SCF as a way to generate returns either indirectly, by freeing up working capital through discounts that result in earlier payments, or directly, in the form of fees earned for providing payables information to third parties that then offer early-payment-for-discounts deals to the suppliers. Cash-rich companies benefit, since they can pay suppliers in return for discounts while avoiding the cut taken by intermediary lenders.

“Now for large corporations, SCF is used as a liquidity management tool to generate yield from extra cash on the balance sheet,” says Shawn Taoufiki, director at REL Consulting.

In a “2/10 net 30” arrangement, for example, a supplier is paid in 10 days instead of 30 in return for giving the buyer a 2% discount. The buyer generates a 2% return on that sum over the remaining 20 days, which equates to a 36% annual rate of return.

“We advise our clients to take advantage of these early payment discount programs when feasible,” says Michael Stitt, executive director of trade and supply chain sales at J.P. Morgan.

Larger retailers were the first to adopt SCF and now manufacturers are setting up programs, Stitt says. “We’ve seen five times the level of inquiry in the last year than the previous four years.”

Robert Kramer, vice president of working capital solutions at PrimeRevenue, a bank-independent SCF provider, calls SCF early adopters the “visionary purchasers” because they crafted their own solutions from basic SCF systems. More recently, “pragmatists” want to buy a complete solution, often to support wide-ranging supplier initiatives, Kramer says.

Given the evolving cash management and risk management benefits of SCF, it’s not surprising that providers of treasury solutions have entered the arena, once the domain of procurement. Kyriba, for example, launched an SCF module for its treasury workstation in the U.S. in March.

In traditional SCF arrangements involving lenders, the bank essentially purchases receivables from suppliers and assumes the risk that the buyer doesn’t pay. Buyers can also enter SCF arrangements that extend payment terms much further out, freeing up working capital that can be put to more productive use.

Hanesbrands, for example, is piloting an SCF platform it built and expects to see an improvement of 40% in average days payable, says Donald Cook, treasurer of the Winston-Salem, N.C., apparel maker with $4.6 billion in 2011 revenue. Hanesbrands anticipates about 75% of its vendors will join the SCF program by year-end.

Cook says the automated platform integrates a U.S. bank and two large global banks, providing a financial solution for suppliers in the Americas, Asia and some Middle Eastern countries. “As all good treasury groups try to do, we’re sharing the wallet with our different lending banks,” he says.

A number of technology vendors, such as PrimeRevenue, Syncada, Ariba, Bottomline Technologies and Kyriba, include multiple banks on their SCF networks, which mitigates the risk from relying on a single bank and increases a program’s capacity to finance payables.

“We’ve chosen to go with a technology vendor and multiple lenders so we have diversity of funding,” says Navistar’s Cederoth, which uses PrimeRevenue. “We’ve found that suppliers prefer the technology vendors’ platforms because they’re more user-friendly.”

Even multinational banks may run into capacity issues when dealing with very large corporate customers that can have billions in payables outstanding. Rick Striano, regional head of trade and financial supply chain for the Americas at Deutsche Bank, says some buyers choose to establish multiple SCF programs to mitigate risk and capacity concerns. Deutsche has no plans to participate in competing platforms, Striano says, but is currently rolling out the “capability to invite other funding banks to participate in our programs.”

J.P. Morgan has been selling SCF assets to other lenders for a few years and has seen the number of banks interested in participating in such syndications increase significantly. “Whereas two years ago there were three or four banks participating in another bank’s program, now there are probably 20, and a year from now it will be closer to 40,” Stitt says.

Another recent trend involves companies offering dynamic discounting, automating a process that allows a supplier to agree to discounting at multiple points in the receivables lifecycle. SCF systems from banks and technology vendors increasingly offer some version of dynamic discounting.

SCF programs can also generate fees for companies that provide data on their suppliers and payables, an arrangement that PrimeRevenue offers on its platform.

“We’re paying them for access to their suppliers and the data from their internal systems,” says Kramer of PrimeRevenue, which pays marketing fees to buyers. “That data is very valuable because it gives suppliers and SCF funders visibility into future events, which they’ve never had before. This lowers costs and risks for all parties and enables funders to provide lower interest rates.”

Wal-Mart Petitions NACHA For Say on Payments: Retail giant asks for corporate reps on NACHA boared
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The annual conference of NACHA, the Electronic Payments Association, was enlivened this year by giant retailer Wal-Mart’s call to add corporate representatives to the group’s board. NACHA’s ACH Network clears electronic payments between banks, and its board currently includes only bankers.

Two Wal-Mart representatives hosted a session at the meeting to discuss the issue, which provoked considerable debate.

Daphne Gilliam, Wal-Mart’s check product manager, argued that NACHA’s “consensus rule-making, resistance to change and fear of criticism” have made it slow to adapt to changes in technology and meet the automated payment needs of banks’ corporate clients.

Jason Marshall, Wal-Mart’s senior director of payments services, added that banks only represent “maybe a third” of the industry. Alternative payment processors like PayPal should also be included on the board, he said.

Wal-Mart is unhappy with the pace at which banks are adopting same-day clearing, especially for small-value debit and credit payments, which are central to the retail business. Wal-Mart and other companies also want banks to adopt business check conversion.

The NACHA board responded cautiously to Wal-Mart’s request. Janet Estep, NACHA’s president and CEO, said the organization’s rule-making process “is what enables the evolution of network use” and “all participants, including corporations, play a pivotal role in these developments.”

Marcie Haitema, past chair of the NACHA board, argues against corporates joining the board. “Wal-Mart and others feel they are the ones paying for the true cost of the ACH system, and that is simply absurd,” she says. “Years ago, NACHA did have corporate board representation, and it was not productive, because the representatives only cared about their companies’ needs, and not the ACH as a whole.”

David Bellinger, director of projects at the Association for Financial Professionals, counters that corporations should have board seats. “NACHA policy is set at the board level, and right now corporate input is indirect and at the end of the decision-making process,” he says.

“It may be some banks don’t want Wal-Mart on their board,” Bellinger adds. “But longer term, whether it’s Wal-Mart or not, getting corporates on the NACHA board will happen."

Prospecting for Gold with Social Media
Jonathan Blaker, Sysco Corporation
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Social media can be a great tool when used properly and is essential in networking with professional contacts. If you are not participating in the top social media and networking sites, now is the time. By not becoming involved you could be missing out on Gold!

Why is getting involved in social media so important? Social media sites are critical components in professional networking, career success and career development. Sites such as LinkedIn and Facebook are playing an increasing role in networking, career advancement and professional success. They allow you to keep in touch with former colleagues, acquaintances and old friends. You call also access groups on sites like LinkedIn, such as the Houston Treasury Management Association (HTMA). By utilizing these groups, you are able to post questions, have discussions or simply read others questions.

Job hunters should also utilize these tools. You may already be a member of the HTMA and know many of the members. You may be looking for a job and have already asked the members you know, but guess what -- you may not know everyone. It could be that a colleague of a friend of and associate is looking for a new employee and you would be the perfect fit. With social media, you could be a potential candidate. This brings to mind “Six degrees of separation,” which refers to the idea that everyone is on average approximately six steps away, by way of introduction, from any other person on Earth. You can see how this can be a very powerful tool.

By being active in the social media sites you are essentially putting your resume out there for others to read. They know how many years of experience you have, what job responsibilities you have and even may know the titles you have held. Many companies and head hunters are now recruiting from sites such as LinkedIn and it is not just local companies. You job search could literally be worldwide. You may not even be looking for a new job but are contacted with the perfect opportunity.

By using social media, you could be “Prospecting for Gold” today and not even realize you are. The right opportunity maybe closer than you think and that new and improved title is right around the corner. Stake your clam! If you have not already set up your LinkedIn profile and HTMA on LinkedIn, join the rush today!

Advanced Marketing: Lockboxes put technology to work to link more payments to the right invoices.
Richard Gamble
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March 1, 2012 

Treasuries continue to advance their collection strategies and streamline collection processing, less by relying on technology breakthroughs than by leveraging existing tools. For example, at $8 billion Henry Schein, a medical supplies distributor in Melville, N.Y., the goal is to buck the trend toward customers’ paying with cards, encourage ACH debits, process check payments as efficiently as possible and live with the realities of the marketplace.

Overall, about 50% of payments arrive by check, 40% pay by card and the rest with wires and ACH, reports Timothy Ingoglia, credit director for corporate accounts at Henry Schein. Card payments are “the most expensive form of payment we receive,” notes Ingoglia. But a growing number of customers favors them, he adds.\
ACH debits from business checking accounts are a small slice of the pie—less than 5%, Ingoglia estimates—but “we’d like to get that to continue to grow. Unfortunately, it’s a slow process.”

So processing checks efficiently continues to be a priority. Checks mostly go to lockboxes operated by BNY Mellon. Those with scannable remittance documents take the retail track and are posted quickly and automatically nearly all of the time—“in the high 90s,” percentagewise, Ingoglia says. Those with less clear-cut remittance information take the wholesale track and are matched as well as possible by BNY Mellon’s complex lockbox algorithms, which use sophisticated rules and data analysis to make high-probability matches around 70% of the time.

Wholesale payments usually settle an invoice or group of invoices. If no match is made from the available scannable documents or remittance information, Henry Schein’s accounts receivable staff does it, working on screen from images captured by the bank and accessible 24/7 on the bank’s iTelecash/TreasuryEdge Web site, Ingoglia explains.

“We have a staff here that resolves and applies the exception items, using the images and a large monitor,” he says. “They tile their screens so the remittance images are on the left and our A/R system to the right. They’ve learned which fields to search.

“It’s still work,” he notes, “but we keep streamlining it.”

To make matches, A/R staffers look for invoice numbers but also try to match payment amounts and check MICR numbers, he explains. “If we can’t always readily determine the right invoices, at least we can make sure we apply it to the right accounts.”

That skill commands respect at the bank. Henry Schein is “certainly among our most successful lockbox users,” says Alan Evanish, senior receivables product manager at BNY Mellon Treasury Services. “They’re very focused on improving their hit rate and seeking to apply best practices. They’re looking for continuous improvement and are open to suggestions.”

In Overland Park, Kan., YRC Worldwide uses a bank lockbox for check payments. YRC’s bank scans remittance documents but doesn’t do the data capture. “We capture the data in our shop using third-party software for significantly less than we would pay the bank to capture it,” says Darrin Brown, manager of revenue management at the $4.3 billion freight carrier. “It’s pretty efficient.”

Whether it’s done in-house or at a bank, the leading edge of automated wholesale lockbox operations is straight-through reconciliation that uses intelligent character recognition (ICR) to capture data and artificial intelligence to match payments to open receivables up to 95% of the time, says Rodney Gardner, head of global receivables at Bank of America Merrill Lynch.

Give your bank access to your A/R system, Gardner advises, and let the bank’s system figure out what your customer is paying for, even when there is no perfect match such as a list of invoice numbers being paid in full by the check.

“The bank’s system may discover that the payment matches the amount of 65 invoices during a 30-day period minus one deduction for a mis-shipment and a 2% deduction for 27 invoices that were paid within 10 days,” he explains. “Those systems process all the available data to figure out what the customer most likely intended. You can review the bank’s matches and then push a button to close out the open receivables. When automated matching can reach 95%, it’s pretty efficient for staff to concentrate on just the less manageable 5%.”

BofA is not hitting 95% today as a rule, Gardner concedes, but he predicts it will come close when its second-generation matching system is introduced in midyear, starting in Asia. Steady improvement in ICR has made misreads extremely rare, he notes. “I wanted to see one at o

ur keying site in the Philippines, but it took half a day before even one came up.”
Demand for sophisticated matching service from banks is spreading from large corporations to the middle market, reports Jeff Siekman, vice president and director of treasury products for Fifth Third Bank.

Upper middle-market treasuries still appreciate data capture by bank keying and data transmission, but they’re starting to ask for smarter application to A/R to minimize exceptions and manual posting, Siekman says.

“We’ll take their A/R file and match the receipts from multiple channels, including electronic bill-pay,” he says. The bank does smart matching today for select clients and expects to roll out a comprehensive smart-matching program to all clients by midyear, he says.

Smarter matching is a modest advance in a service—wholesale lockbox—that generally is stagnant and shrinking, notes Paul LaRock, a principal at consultancy Treasury Strategies. “The leaders are trying to move away from receiving check payments to being paid by ACH,” he says. “Lockbox technology hasn’t changed much, but we’re seeing practice catch up to tools that have been available.”

Lockbox technology may not be brand new but it has worked well enough to narrow the efficiency gap between paper and electronic payments, notes Greg Cicero, another principal at Treasury Strategies. “Electronic payments still win,” he says, “but lockbox efficiency has lessened the urgency in many treasuries to convert customers. We won’t see the end of paper checks, especially B2B checks, any time soon.”

Processing costs now take a back seat to liquidity and working capital management, Cicero notes. “Treasury staffs are doing all they can to capture the information and post the payment as quickly as possible.”

The business case for lockbox automation typically involves expense reduction, but the real endgame is capturing more data and gaining more insight into the data, agrees Donovan Shand, vice president for global corporate product management at Comerica Bank.

“That feeds better working capital management,” he says, “and allows a treasury staff to be more strategic.”

Holder in Due Course and Check Fraud
Frank Abagnale     President, Abagnale and Associates       www.FraudTips.net
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Every company that issues stop payments on checks or uses generic check stock that is available entirely blank is vulnerable to a holder in due course lawsuit. Litigation expense and holder in due course judgments can cripple a company financially and should be feared and avoided, especially in light of some Appellate Court rulings. A Holder in Due Course is an innocent third party who accepted another party’s check in good faith and was financially injured because the check was dishonored by the financial institution. Section § 3-302 of the Uniform Commercial Code defines a holder in due course as “…the holder of an instrument if: (1) the instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and (2) the holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument…has been dishonored, (iv) without notice that the instrument contains an unauthorized signature or has been altered…” The UCC allows a holder in due course full transferability of rights to assure the holder a free market for the instrument (§ 3-203). A holder in due course has three years from the date a check was dishonored or ten years from the date the check was issued, whichever period expires first, to sue the maker for recoupment (§ 3-118). 

Following are three cases decided by the Superior Court of New Jersey, Appellate Division. All involve Robert J. Triffin, a Pennsylvania resident who is in the business of purchasing dishonored instruments (checks), acquiring holder In due course status and suing the maker for recoupment. The complete cases can be downloaded and viewed at www.FraudTips.Net/holder.htm.

Superior Court of New Jersey, Appellate Division, A-163-00T5

In October 1998, Alfred Hauser, president of Hauser Co., was notified by a retailer and Somerset Valley Bank that several individuals were cashing what appeared to be Hauser Co. payroll checks. Mr. Hauser reviewed the checks and ascertained that, while the checks looked like his checks, they were counterfeits because none of the payees worked for him and he did not authorize anyone to sign those checks on his behalf. At that time, Hauser Co. employed Automatic Data Processing, Inc. (ADP) to provide payroll services, and a facsimile signature was utilized on all Hauser Co. payroll checks.

Mr. Hauser executed affidavits of stolen and forged checks at the bank, stopping payment on the checks at issue. The Bank subsequently received over 80 similar checks drawn on Hauser Co.’s account, valued at $25,000. The checks were returned unpaid by the bank and marked as “Stolen Check - Do Not Present Again.”

In February and March 1999, Robert Triffin purchased 18 of these dishonored checks totaling $8,826.42 from four check cashing agencies. Each agency stated that it cashed the checks for value, in good faith, without knowledge that any of the signatures were unauthorized or forged. All 18 checks bore a red and green facsimile signature stamp in the name of Alfred M. Hauser.

Mr. Triffin then sued Somerset Valley Bank and Hauser Co., contending that Hauser Co. was negligent in failing to safeguard both its payroll checks (which apparently looked like legitimate ADP checks) and its facsimile stamp, and was liable for payment of the checks. The lower court granted Mr. Triffin summary judgment on the basis that the checks appeared to be genuine. Hauser Contracting appealed the decision, arguing that summary judgment was improperly granted because the Court failed to properly address Hauser Co.’s defense that the checks were invalid negotiable instruments and therefore erred in finding the plaintiff a holder in due course.

However, the Appellate Court agreed with the lower court. It also found that because the checks appeared to be genuine, Hauser Co. was required, but had failed, to show that the check cashing stores had any notice that the checks were not validly drawn.

The Court found that the 18 checks met the definition of a negotiable instrument. Each check was payable to a bearer for a fixed amount, on demand, and each check appeared to have been signed by Mr. Hauser, through the use of a facsimile stamp. Hauser then contended that the checks were not negotiable instruments because Mr. Hauser did not sign the checks, did not authorize their signing, and its payroll service, ADP, did not produce the checks.

The Court found that lack of authorization was a separate issue from whether the checks are negotiable instruments. The Court dismissed Hauser’s argument that the checks were invalid because they were fraudulent and unauthorized, reasoning that to preclude liability from a holder in due course, “it must be apparent on the face of the instrument that it is fraudulent.” Hauser failed to introduce any such evidence, and Mr. Triffin won.

Recommendations: It is clear from this case that if a thief can get check stock that looks genuine, your company can be held liable for losses that may occur from those counterfeit checks. Most companies buy check stock from vendors that sell the identical check stock entirely blank to other companies, totally uncontrolled, thus aiding the forgers. Many companies opt for these checks because they are less expensive than customized checks (legal fees and holder in due course judgments are not factored into the low cost). Forgers acquire the check stock, and using a $99 scanner and Adobe Illustrator, create counterfeit checks that cannot be distinguished from the account holder’s original checks. This is what creates holder in due course legal exposure. Companies should use checks uniquely designed and manufactured for them, or buy from vendors such as SafeChecks (www.safechecks.com) that customize every company’s check and never sells check stock entirely blank without it first being customized for the end user.

297 N.J. Super. 199, 687 A.2d 1045 (App. Div. 1997)

In this case, Mr. Triffin appealed a trial court’s summary judgment decision dismissing his complaint for payment of a Cigna Insurance Company check that was transferred to Triffin by a holder in due course after Cigna had stopped payment on the check.

On July 7, 1993, a check for $484.12 had been issued for workers’ compensation benefits to James Mills by one of Cigna’s companies, Atlantic Employers Insurance Company. Mills received the check, but falsely claimed to the issuer that he had not due to a change in his address. He requested that payment be stopped and a new check issued. The insurer complied and stopped payment on the initial check and issued a replacement check that was received and cashed by Mills. Thereafter, Mills cashed the initial check at Sun’s Market, Triffin’s assignor, before the stop payment notation was placed on the check. Sun presented the check for payment through its bank. Cigna’s bank dishonored the check on or about July 12, 1993, stamped it “Stop Payment,” and returned the check to Sun’s Market’s bank. Sun’s Market was out $484.12. All parties agreed that had Sun’s Market pressed its claim against Cigna as the issuer of the check, Sun’s would have been entitled to a judgment because of its status as a holder in due course. Sun’s Market posted the check on a bulletin board in the store where it stayed for about two years until Robert Triffin visited the store and purchased the item at a deep discount off face value.

In the purchase, Sun assigned its holder in due course rights to the check to Triffin, who filed suit against Cigna on August 28, 1995, over two years after the check
was returned unpaid. Although Triffin lost on summary judgment at the trial court, the
Appellate Court reversed the summary judgment and instructed the lower court to enter
judgement in favor of Robert Triffin, with interest.

Recommendation: Every company issues stop payments, and some have hundreds of outstanding stop payment orders on checks. Two important items to consider about stop payments. First, as this case illustrates, placing a stop payment on a check does not necessarily terminate your obligation to pay the check. Companies should print on the face of the check a statement declaring a date after which the check is no longer valid, such as “THIS CHECK EXPIRES AND IS VOID 20 DAYS AFTER ISSUE DATE.” If a check is lost, the payee would have to wait 20 + 2 days before the check is reissued. While this practice would be very inconvenient for the recipient, there is no other way a company can protect itself from a holder in due course claim. Second, a stop payment is typically good for only 180 days. After that time, the stop payment drops off the bank’s system and is no longer monitored. If the checking account is not on Positive Pay, the stop payment should be re-issued. A check that is six months old becomes a stale-dated check, and a bank has the legal right (but not the legal requirement) to decline payment on a stale-dated check. Further, a bank cannot be held liable for paying a stale-dated check Positive Pay will catch stale-dated checks.

370 N.J.Super. 301, 851 A.2d 100, 2004.NJ.0000281

This is one of the few cases Robert Triffin lost. It illustrates the value of using high security, controlled check stock to protect oneself from some holder in due course claims.

In this case, the Court was asked whether an innocent party, whose check stock was imitated and whose signature was forged, can be held liable when another innocent party pays that check in good faith. The answer is No.

On April 20 and 21, 2002, a check cashing store cashed 18 counterfeit checks, in amounts ranging between $380 and $398, purportedly issued by Pomerantz Staffing Services. Each check bore Pomerantz’s full name and address and a facsimile signature of “Gary Pomerantz.” Printed on the face of each check was a warning: “THE BACK OF THIS CHECK HAS HEAT SENSITIVE INK TO CONFIRM AUTHENTICITY.” Without examining the checks as suggested by this warning, the store cashed the checks, which the bank returned unpaid and stamped: “COUNTERFEIT” and “DO NOT PRESENT AGAIN.” (The fact that the bank caught checks of such low dollar value suggests that Pomerantz was utilizing its bank’s Positive Pay service.

Robert Triffin bought those checks and filed suit against Pomerantz. Both parties filed cross-motions for summary judgment. The trial judge granted Pomerantz’s motion and dismissed the case. Triffin appealed because Triffin almost always wins on appeal.

In the appeal, Pomerantz claimed that it did not sign the checks, which also did not come from its check stock. Triffin presented no evidence opposing those claims. Also, Triffin did not explain why the check casher did not examine the checks for heat sensitive ink as directed on the face of check. Their bogus nature would have been revealed by simply touching the checks. The Court said it was reasonable that the holder, and especially a check casher, can be expected to fully examine the front and back of the instrument to verify its authenticity when a method for doing so is available. Because the check casher failed to authenticate the checks, it did not obtain holder in due course status, and Triffin could not claim what the check casher did not have. Mr. Triffin lost.

Recommendations: Use high security checks that include explicit warning bands and overt and covert security features to help prevent check fraud losses, including some holder in due course claims. Consider the SuperBusinessCheck designed by Frank Abagnale with 15 security features, including heat sensitive ink, a true watermark and explicit warning bands. The SuperBusinessCheck is a highly secure, controlled check stock that is available through SafeChecks.

Chucking Checks
Richard Gamble
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From the February 2012 issue of Treasury & Risk magazine
February 1, 2012

Led by concerted efforts on the accounts payable side, projects to convert check payments to ACH are starting to produce real benefits. When $12 billion Dean Foods decided to streamline vendor payments in late 2009, the Dallas, Texas-based company had the foundation for an impressive turnaround—a bloated vendor base of nearly 200,000, roughly 100 employees tied up handling invoices and check payments, only 7% of 52,000 monthly invoices arriving electronically, and 80% of supplier payments going out as checks, requiring a daily check run of up to 5,000. Days payable outstanding (DPO) stood at 19 days.

Now the vendor base is a svelte 60,000. There is only a limited check run because 86% of supplier invoices are now paid by ACH. Settling an invoice with a check is the rare exception, reports Julie Mingus, director of corporate treasury operations and disbursements. About 50 employees now handle invoices and payments, and all but 24% of invoices arrive electronically after a three-stage campaign to get suppliers to e-mail their invoices in TIFF format.

Experts consider such a high conversion rate essentially impossible, but Dean Foods could do it because it had multiple suppliers for almost everything it bought. As the company shrunk its supplier base, in most cases only those that would agree to card or ACH payments survived. “If a supplier wouldn’t take ACH payment, we’d go to the next one on the list,” Mingus says.

The payoff includes a $65,000 annual savings in postage costs. DPO was stretched to 26 days by applying standard net-35-day terms to all vendors, Mingus explains. The annual savings from early-pay discounts has risen from about $2 million to more than $4 million.

At $4.5 billion PulteGroup, a project to convert vendors from check payments to ACH is well under way, reports Dory Malouf, treasury cash operations manager at the Bloomfield Hills, Mich., home builder. So far, approximately 2,100 vendors have converted. Pulte does not count the number of payments per converted vendor, but if they averaged one a month, the savings already realized would be about $216,000 a year, and the project has the potential to provide a lot more savings.

If trying to eliminate vendor check payments is pretty much a no-brainer, it takes plenty of brains to set up a program correctly, and Malouf is pleased with the way Pulte’s is working. For one thing, the company requires vendors to provide a letter from their bank confirming the account number and attesting that the account is in good standing.

“We know the information they provided is correct,” Malouf says. “This means we have no return issues. One company we talked with has 15% returns, but we found a way to avoid that problem.”

Pulte also elected to use a separate account for ACH payments, rather than running them through its controlled disbursement account. That segregation and the use of debit blocks add an important layer of security. “Vendors have to see your bank account information, but this way they can’t get any more money than we authorized,” Malouf says. “This protects us from fraud and vendor conflict issues.”

As a critical first step in the project, generally decentralized Pulte centralized its A/P operations. “We now have a national financial services center downstairs to handle all A/P,” Malouf notes. “This allowed us to make vendor ACH payments very efficiently.”
And since the payments are not extremely time sensitive, vendors are paid the second day after the bank receives the file, not the next day. “This way we never incur late fees from the bank,” he says, “and we have more time to react if any payment needs to be recalled.”

Converting vendors requires consent, and at the end of the day, supplier acceptance probably depends on “what will happen in their A/R operation,” says Greg Cicero, a principal at consultancy Treasury Strategies. “If they don’t get the invoice detail they need with an ACH payment, or if their back office system can’t apply the payment, it won’t work.”

Often the issue is remittance information. Checks arrive in the mail with paper remittance data that are hard to automate but complete in many cases. Moving to ACH could mean losing some of that data, explains Arthur Brieske, head of product management for the Americas in global transaction banking at Deutsche Bank. The trick is to decouple the information from the payment and send it separately but identified so it can automatically be matched u

p with the payment for posting and reconciliation in the payee’s A/R system, he says.
Conveying remittance data was not a big stumbling block for Dean Foods, Mingus says. The company simply put the data in an e-mail attachment, sent the same day the ACH payment was made, and vendors went along, in many cases printing out a PDF and treating it like a paper document. Now, for large national suppliers that want data feeds to A/R systems, Dean Foods has a Web portal where they can log on and download remittance data into a spreadsheet.

The other challenge in converting vendors from checks to ACH is getting their bank information—account number and transit routing number—Brieske explains. “It works best when there is a portal where vendors provide bank account information and receive remittance detail, thereby streamlining the execution and reporting process,” he says. Companies that use vendor portals typically are more successful, with conversion rates as high as 80%, than the companies that don’t, with conversion rates under 30%, he reports.

Darrin Brown, manager of revenue management at $4.3 billion YRC Worldwide, a freight carrier in Overland Park, Kan., looks at the issue from the other side—as a vendor trying to switch its customers from checks to ACH. And Brown has found a partial solution for receiving remittance data: “We get it by e-mail. Our system can link the customer account to the e-mail address and pull the remittance data into a spreadsheet that shows the customer account. The matching is still somewhat manual, but it’s a lot more efficient than trying to work from paper or images of paper remittance documents. It’s matching at a higher level.”

YRCW moved from 28% electronic payments in 2009 to 32% in 2011, using a green sell.

“We sent out a flier with invoices in 2009, pointing out that paper payments help to destroy rain forests and are bad for the environment,” Brown explains. “And we showed them how simple it was to switch. A lot of them thought it would involve EDI, but they can just send us a text file or spreadsheet and we take it from there.”

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