Cash Management Services

Cash Management Services

Detail the different services available, the features of one particular service you believe to be the best, and the fees involved.

Among the types of cash management systems offered by banks are account reconciliation, lockbox, cash collection services, wire transfer, reverse positive pay, cash concentration services, sweep accounts. Corporations and other large businesses engage in many transactions, both with cash and checks, on a daily basis. It would require many hours of human labor to verify each of these transactions to know the company’s actual financial balance. Commercial banks have therefore devised a system, account reconciliation, in which companies submit a list of the checks they have given out.

This information is uploaded on a daily basis and at the end of each month, the bank will issue out a bank statement showing the cleared checks and those which have not been cleared. With sweep accounts, surplus funds from an organization’s bank account are transferred into a money market mutual fund. This process is automated, moving the funds to the mutual fund overnight, and moving them back to the account in the morning. In this way, interest is earned overnight, and the funds will be available to the company the next morning. These services are provided by the First Citizens Bank.

Lockbox and cash collection services are available at the Bank of America. Lockbox services may be retail or wholesale. With lockbox retail, companies receiving many payments in form of posed checks can request the bank to open for them a post office box. From this box, the checks received are deposited into bank accounts. Lockbox wholesale services are offered to organizations receiving few numbers of payments, often with detailed processing procedures. Cash collection services, also called armored car services, enable large businesses to enlist the bank’s services in picking up large amounts of money with armored cars. This is a more secure way than having employees deposit the money.

Cash concentration service is mostly applicable to large retailers operating in areas where their main bank has no branches. Such companies open bank accounts with several banks in the area. Thereafter, the funds are wired to the company’s main bank through the automated clearinghouse system, from where they earn interest. With positive pay service, the company gives its checks register to its bank. The bank will pay out checks to only those in the register according to the specifications given. This system goes a long way in reducing fraud. These services are given by the Synovus Bank of Florida.

On the other hand, with reverse positive pay available at the Bank of America, it is the company, and not the bank, that keeps a list of the checks issued out. After cheques are presented for payment, the Federal Reserve list down details such as account and serial numbers and gives it to the company. Subsequently, the company compares this list with their own and orders the bank to pay out the items that match. In this way, the company has direct control over whom it issues checks to. The work of the bank is not to direct how the checks will be issued, but to follow the instructions given to it by the company.

Another service provided by the Bank of America is wire transfer whereby money is transferred electronically. In this service, the receiving bank is instructed to make payments according to specific instructions. This is one of the most convenient ways of transferring money, as it is done through the phone. Of all these services, wire transfer stands out as the most convenient. An individual or company wishing to transfer money orders the bank to transfer a given sum of money. The bank is given IBAN and BIC codes so that it knows where to send the money, and the directives to follow while carrying out the transaction.

Through a secure system such as SWIFT and Fedwire, the bank sends a message to the receiving bank, ordering it to make payments according to certain instructions. The money may take hours or days to be moved from the sender to the receiver. The transaction is done through a reciprocal account held by the two banks, or through a correspondent bank. Wire transfers are relatively expensive. For instance, the Bank of America charges $25 to send, and $12 to receive money within the United States. For transfers out of the country, charges are $35-$45 to send, and $16 to receive.

What are the advantages and disadvantages of each bank’s offering?

As mentioned above, the Bank of America offers wire transfer services. This is one of the most convenient ways of moving money from one bank to another. However, the biggest disadvantage is the cost. Sending money via wire transfer is expensive; therefore, this method is recommended for transferring large sums of money. Cash concentration services have numerous benefits. The customer can use the money to pay debts or invest one the funds have been consolidated. It prevents money from lying idle in remote bank branches. In addition, time is saved in that there is no need to write checks for the transfer to occur.

Synovus Bank offers its customers the opportunity to access this service through Business Internet Banking, making the transfer even faster. However, cash concentration services in the United States are on a steady decline. This is largely because corporations are keeping accounts with fewer banks than before driving this service to near obsolescence. In present times, companies prefer to open fewer accounts in order to minimize on bank charges. Other services like wire transfer are becoming the more desired mode of cash transfer compared to cash concentration.

Account reconciliation offered by First Citizens Bank is that it lowers the bank charges levied, by reviewing the deposits and withdrawals periodically instead of on a daily basis. The other advantage is that it provides full details of deposits and withdrawals by location. It also makes the adjustments required in order to come up with a correct reconciliation. The bank puts the deposits in one account for disbursement and investment. With this service, errors and frauds can be detected. Double payments can be detected and corrected accordingly, and action can be taken upon discovery of fraud. The disadvantage is that it is a tedious process, and the causes of difference in the books may not be discovered.

Lockbox services by the Bank of America have the following advantages. It is a simple method as customers can send checks from anywhere, even from home. It is a fast method of transacting, as there is no exchange of transaction instruments. In addition, because of the many branches countrywide, customers can transfer money to any of the branches. Sweep account services by First Citizens Bank is advantageous in that it allows for the funds to earn interest overnight, and be available to the customer the next day. The automatic transfer of the funds at night and during the day eliminates the need to move money manually to different accounts. In addition, no investment knowledge is required on the part of the customer as this is done by the bank.

Positive pay by Synovus Bank has the advantages of reducing the chances of fraud, which would lead to loss of money. The customer has more control over funds that are more predisposed to fraud. Lastly, it allows the customer to make quick decisions regarding money that is most prone to fraud. Reverse positive pay of the Bank of America gives the customer more control of his account activity. The customer has control over who receives its checks. In addition, there is internal control. Checks to be issued out must first be authorized by the customer before they can be given out.

Which bank and cash management service would you choose? Why?

I would choose the lockbox service of the Bank of America. This service does not require one to be physically present at the bank. Through this service, checks can be sent from virtually any location. Coupled with the many branches, money can be sent from anywhere to anywhere. By opening a post box, a company can receive consolidate all the checks it receives from different sources into the post box. The checks are then deposited into the company’s main account. In this way, it is possible for the company to keep track of where the checks come from, and when they were received.

How can using a bank’s cash management service reduce opportunity cost for a health care organization?

A health care organization can make use of sweep account services. Public health care providers are not in the business of making money. Furthermore, they constantly need money to purchase supplies such as medicine and equipment. Because of this need, these organizations are not in a position to put their funds into long-term investments. By operating sweep accounts, their funds can be invested and earn interest overnight, rather than lying idle in the accounts. Furthermore, the organizations will have daily access funds it needs to acquire supplies.