Average NET Collected Balance (3/14)

Account Analysis consists of balances and fees which comprise a basic math calculation. There are 14 balances that I refer to as "Remember the Math". I will discuss all 14 in 14 different posts.

Average NET Collected Balance

This balance may be pretty straightforward since its value is computed as Average Net Ledger Balance less Average Float Balance.
  
    Avg NET Ledger Balance
less         Avg Float Balance
Avg NET Collected Balance

The Average Net Collected Balance is the sum of the daily collected balance over the number of days in the period.  This is the net balance because it doesn't include any pending yet-to-clear transactions so it's an accurate reflection of the account's available balance. 

What is not included in the computation above is Balance Adjustment Prior Period Ledger. This balance, as its name states, is for any adjustments made to your ledger balance from the prior period. Since most adjustments from prior periods are sent during the current period, this balance will fall between the Avg Net Ledger and the Avg Float.

        Avg NET Ledger Balance
+/-- Balance Adj Prior Period Ledger
less   Avg Float Balance                         
       Avg NET Collected Balance

The balance in red, as with all adjustments, may not be on an account statement from a prior period so this balance may be zero if it is sent at all. If sent as a non-zero value, this balance may be either a negative or positive value which determines its calculation in the above equation.

The important thing is know about the Avg Net Collected Balance is that some financial institutions may use this balance to calculate your account's Earnings Allowance.  Suddenly, this simple balance becomes very important to watch out for.

Happy Analyzing!

In The News: Image Replacement Document (IRD)

Periodically, I'll do a "In The News" post about an Account Analysis topic.

Today's topic: Image Replacement Documents (IRD).  

September 11, 2001 was a major push in creating Check 21 which allowed financial institutions (FIs) to clear paper transactions in lieu of paper checks by taking an image of the front and back of those checks and creating an IRD, also known as a Substitute Check.  This IRD served as a replacement for the paper check, sped up the clearing process, and allowed various payment systems to continue their operations.

In an IRD, the front of the check is captured as a digitized image as well as all components necessary to clear a paper check such as the Magnetic Ink Character Recognition (MICR) line, the amount of the check (if not already coded in the MICR line), the payor and their signature, the date, the drawee bank, and the payee.  From the back of the check, the signature of the payee is also captured.  This image replacement document results in a paper replica of the actual check.

Since FIs are constantly looking for ways to cut costs and remain competitive this has resulted in a push towards Remote Deposit Capture (RDC).  If you don't have a commercial account with a financial institution but you do have a personal bank account, an RDC would be the equivalent of what most big banks now allow their account holders to do remotely; use their smart phones to capture a picture of the front and back of any check the account holder wants to deposit.

I recently did this for one of my bank accounts.  I took a clear picture of the front of the check I want to deposit making sure the entire check was imaged in that one photo.  Next, I endorsed the back of the check and then took a picture of the back making sure the entire check was also in that image.  I uploaded both images to my bank via my mobile app and then I got a confirmation email shortly thereafter.  This is a Remote Deposit Capture because I essentially captured an image of my paper check for deposit from a remote (not physically at the bank) location.

An RDC is similar to an IRD minus the paper product which equals less cost.  

Capture the same pertinent information but without the paper = image payment clearing.  According to this recent article from American Banker, Wells Fargo is piloting the imaging technology in select branches with tentative plans to roll out the imaging technology to all of its state locations in 2014.

What does this mean for commercial bank account holders?  Quicker access to your funds since paper checks will now clear faster.

How does this tie into Account Analysis?

Many commercial account holders receive a service line item and charge for an Image Replacement Document (IRD) on their account analysis statement.  The service description may vary across banks but the description of the service provided does not.  The big banks have the tools in place to begin a push towards implementing imaging technology so, if all follow suit, we should expect the replacement of IRD service charges on the Account Analysis statement with RDC service charges.

Also, since it means less cost for the bank it's only natural to expect (and demand) a lesser charge for the account holders than using an IRD.  However, the smaller banks won't have the capabilities to move with the imaging technology so you, the account holder, may send an image to your smaller FI for presentment but that smaller FI will instead produce an IRD and charge you for it.

Don't expect RDC services for quite some time if you have accounts with smaller FIs.  

With change comes the importance of monitoring your Account Analysis statements to make sure you and/or your company are seeing the benefits of these changes and fairly so.

More info can be read about check processing here and about RDCs here.

Happy Analyzing!

Why is Account Analysis Worth Your Time?

Daily, I communicate with Treasurers, Assistant Treasurers, Treasury Analysts and/or Cash Managers.

Some are anal about their account analysis and take the task of saving the company money on its bank service fees as well as auditing its bank(s) very serious.  These are the ones I hear from often about the most minute of balance calculations to the more serious, "Omg my bank has been overcharging us for months!" which leads to some adjustments and credits coming their way.  Yayy!

Then there are the ones who never do anything more than compare the electronic statement (822 or BSB) against the paper statement.  If the bank sends the value twice on two different statements then it must be accurate. Right? Somewhere a trained auditor is scratching their head at this logic.

There are also the ones who simply don't care about their account analysis. They get the statement every month (or quarter) and just pay the bill (or allow the bank to direct debit their account for the fees due).

Common reasons as to why most Treasury departments neglect their Account Analysis: 

a) It's too time consuming
b) We just don't have the staff available
c) The software programs on the market are ridiculously expensive
d) The possible benefits just don't justify the costs
e) We are perfectly fine using Excel spreadsheet for those purposes.

My rebuttal?  Ok.

Today, my goal isn't to sell you something or tell you how important it is to ensure you are being charged correctly (and possibly fairly) for the services your company uses.  My goal isn't even to tell you how your relationship with your financial institution should be a truly give-get.  Why am I not trying to say these things?  For one, I'm a horrible sales person.  Two, I completely understand having to justify spending thousands of dollars to implement a new system whose costs might reap benefits (but, to this I do have a solution so contact me!)

Three, you can't convince someone to do something they have already decided isn't worth the time and effort.  

Or can you?

What if and, hear me out here, what if the amount of money you saved the company directly translated into money for you, the employee?  What if you could quantify, track, and record these savings to show the benefits of doing your account analysis not on a sporadic basis but on a regular basis.  What if someone decided to take a "how can I make myself look good, pad my resume and accomplishments, while at the same time making the company's bottom line look good too?" approach?

The best salesperson can sell you something you never thought you needed.  But, only someone with trained eyes can show you where you are bleeding money and teach you how to plug the hole.  Use those savings to justify a bonus and/or raise because, after all, you should get a cut of some of those savings.  Right?

I could go on and on about overcharges, undercharges, clever math, bundled service fees, pass-through charges, crappy ECRs, and even the difficulty of getting a refund or credit when you finally discover an error in your account analysis.  But....

It's not my money so why should I care.  

It's AMAZING how less motivated people are when they think this way.  Put yourself in the equation and maybe it will change your perspective.  Whether the current employer appreciates it or not, you have documented evidence in the value you have brought to the company and, let's be honest here, what company frowns on employees who save them money?

I recall several articles where the research shows money is not a motivator for employees to work harder than they have to.  Recognition for their accomplishments.  Accolades.  Appreciation.  Responsibility.  Autonomy.

Don't leave money on the table; whether it's your money or the company's money.

Give it some thought.

Happy Analyzing!

TWIST BSB and ISO BSB

Things are going international.  Or, things have gone international.  Actually, things have always been international but certain someones are late to the party.

When I began my career in Account Analysis, I familiarized myself with the ANSI X12 EDI 822 file; the domestic account analysis statement.  I learned the different versions of the 822; the various segments a bank can send; each position of those segments; how to read and interpret its data; and how to reformat or make minor corrections to the file, if needed.  I like to think I became an expert then along came the BSB and I realized something; you're only an expert until something new falls on your desk.

The TWIST BSB.  What is TWIST?

The Transaction Workflow Innovation Standards Team (TWIST) is a not-for-profit industry group with representatives from several key constituents.

What is a BSB? A Bank Service Billing (BSB) is a standard digital file for bank billing of primarily international services. 

As I stated earlier, the 822 file is for domestic use while the BSB is for international use accommodating various currencies, taxes, and utilizing international bank and account field codes.

Now, the ISO 20022 BSB is the new new. 

What is ISO? 

Industry Organization for Standardization.  Wait, that's IOS not ISO. I know...it confused me too in the beginning but I just rolled with it.

Here you can find more information about the ISO 20022 (camt.086) which is a "standardization approach used by all financial standards and initiatives".  I haven't gotten my hands on an actual ISO BSB yet since most financial institutions are still trying to create a good one....but, I'm sure I will very soon.  From my experience, having to correct a  file is the best way to learn about its components.

So, what's the difference between an 822 and a BSB file?

For starters, taxes usually aren't sent on an 822 file but they are definitely formatted to be sent in the TWIST BSB and also the ISO BSB.

There are a lot more currency types found in a BSB file than in an 822 file.

The formatting of data will look different and have different tag names between the 822 and BSB.

822 files are usually sent with an .822, .txt, doc, or .docx extension.  BSB files are sent with an .xml extension.

There's way more to it than that but the point was to explain the high-level differences and define each.

With the new ISO BSB, AFP Global Codes, and the slow but positive embrace of international accounting practices along with creating a standard for international treasury and account analysis, I foresee good things ahead.

Until then, happy analyzing!

What are Hard Charges?

From my experience, banks send service charges one of four ways: analyzed, hard, waived, or debited.  Usually, most bank services are sent as analyzed charges on an account analysis statement but what are hard charges?

A hard charge means it cannot be offset by any earnings allowance the account may have earned for the period.  This makes these service charges very important since any earnings earned can't be used to lower your total service fees due balance.

Hard Charges are sent on an account analysis statement as Service Charges - Non Balance Compensable.  

All hard charges for one account during a particular time frame should be shown as this balance.  In older versions of an EDI 822 file, the SER segment denotes a hard charge usually by sending the Balance Required field as 0.00.  Since the Balance Required field indicates the balance required in the bank account to offset $1 of service charges, it makes sense that for hard charges this field would be zero.

Why are Hard Charges important to know for Account Analysis?

As mentioned earlier, hard charges can't be offset by the earnings allowance so this makes them fee-based services.  A fee-based service means they will always incur a fee for their activity.  This reminds me of hybrid costs; fixed as far as the account holder will always expect to incur a fee which cannot be offset but also variable in that the amount of this fee is determined by the volume or the service's level of activity. Amongst other things, higher fixed costs may result in a higher breakeven point and/or higher operating leverages.

Happy Analyzing!