Accounts Receivable Check Truncation in the Real World

1
Accounts Receivable Check Truncation in the Real
World

• Presented by
• Sandra Celis, AAP
• Assistant Vice President, Destin Bank the
  Financial Centre
• Joseph D. Korinek
• Chief Information Officer, Global eTelecom

2
Overview

• Background
• Pilot Rules
• New Rules
• Impact of Rule Changes
• Implementation of ARC
• Pilot Program Case Study
• Questions Answers

3
Background

• The NACHA Operating Rules for Accounts Receivable
  Entries (ARC) became effective on March 15, 2002
  replacing the Lockbox Pilot that had been running
  since December 1999.

4
Pilot Rules

• Checks were subject to NACHA Operating Rules, UCC
  and Reg CC
• Checks were not Reg E items
• Convert only checks received by US Mail
• Original Check needed to be retained for 90 days
  image stored for 7 years
• ACH SEC Code was PPD
• Some ODFI Reporting Needed for Pilot

5
New Rules

• Now falls under NACHA Operating Rules, Electronic
  Funds Transfer Act
• Check is Now a Reg E item (Check is a source
  document)
• New ACH SEC Code of ARC
• Must destroy check within 14 days of presentment,
  image stored for 2 years.
• Now accept U.S. Mail and Lock Box items
• Notice is now considered Authorization

6
Impact of Changes to Rules

• Change to Reg E item streamlines process makes
  ARC consistent with other e-check applications
• Allowing Lock Box in addition to U.S. Mail
  improves merchant acceptance
• Notice vs. Authorization improves merchant
  acceptance
• Lack of ability to process corporate checks slows
  merchant acceptance

7
Implementation of ARC

• Changes to Entry Detail Record
• ODFI Requirements
• RDFI Requirements
• 3rd Party Processor Requirements
• Originator Requirements

8
Changes to Entry Detail Record

• Standard Entry Class was PPD, now ARC
• Field 7 is now Check Serial Number and is now
  mandatory

9
ODFI Requirements

• Warrant Originators are
• Complying with rules
• Providing Amount, Routing Number, Account Number
  and Check Serial Number in accordance with source
  document (Check)
• Meeting retention and destruction requirements

10
RDFI Requirements

• Returns by 2nd banking day following settlement
• Some exceptions allow 60 calendar days following
  settlement
• Authorization Revoked (R07)
• Stop Payment (R08)
• Improper source document (R10)
• Source Document presented for payment (R37)
• Check Serial number required on Consumers
  Statement

11
3rd Party Processor Requirements

• Comply with NACHA rules, REG E, UCC, and revised
  Title 31 of CFR part 210, etc.
• Validate routing numbers, account numbers, check
  amounts and serial numbers
• Comply with ACH format requirements for ARC
• Assist ODFI with exception handling

12
Originator Requirements

• Provide Notice on Lock Box and Billing Statements
• Provide Opt-Out for customers (no longer
  required, but a good business practice)
• Comply with retention and destruction requirements

13
Pilot Program Case Study

• A Utility Company
• Started processing December 11th 2001
• Still processing, now using new rules
• Started with low volume, increased volume as
  company grew accustomed with technology and
  process

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The Problem

• Utility used essentially all manual processes
• Recently upgraded to new billing software
• Employee resistance to change present
• Checks being copied by hand on copier for storage

15
The Solution

• Convert manual data entry to automation
• Integrate ACH process into new billing software
• Overcome employee resistance to change
• Maintain existing process as closely as possible
• Eliminate duplicate data entry

16
The Implementation

• Deployed initial solution within two months of
  approval to proceed
• Used a Project Plan approach to deployment and
  integration with existing systems
• Empowered employees in the process to reduce
  resistance to change
• Clearly defined changed and new processes
• Employed continuous process improvement

17
The Result

• Automation significantly reduced labor
• Opt-Outs were approximately 3
• Returns were less than 1
• Available software tools insufficient for ARC
  new software tools were developed to maximize
  benefits
• Employee resistance overcome by responsiveness to
  feedback and training

18
The Future

• Continue improving the tools
• Develop multiple solutions for various industries
  and volumes
• Improve training and deployment
• Market new capabilities
• Push for changes to rules for corporate checks