CHAPTER 5: CASH APPLICATION, DEDUCTIONS, AND DISPUTE MANAGEMENT
ENDORSING CHECKS Before checks are deposited, make sure to endorse or sign the back of the check. Most companies have a stamp that they use to endorse the checks before depositing. As noted above, beware of restrictive endorsements that by cashing the check may mean that legally you agree to certain endorsement terms. These endorsements can be found in either the memo line or preprinted on the check. The most common restrictive endorsement is the phrase “paid in full,” which if the check represents a short payment or deduction, may leave a company with no legal option to pursue additional payment once the check is cashed. A solution is to create a policy requiring all checks with restrictive endorsements to be pulled from the cash application process and sent to an attorney (or manager) for an opinion before proceeding. LOCKBOXES (REMITTANCE SERVICES OR REMITTANCE PROCESSING) A lockbox is a post office box that your bank can access to receive customer payments. Usually special bank couriers access and retrieve the checks from the lockbox and deliver them to the bank on a daily basis. The bank processes the checks and deposits the funds to the company’s account. The information on those transactions is then uploaded directly into the client’s accounts receivable cash application system, updating receivables automatically, or transmitted electronically to the client, where the cash application team will enter the payment on the customer’s account. The benefits to a company that uses a lockbox are accelerated cash flow (as the money is deposited directly into the bank account and then processed in the AR system), improved accounts receivable processing efficiency, and better control/security over the checks. Typically, lockboxes are used by organizations with high volumes of check transactions, though many banks today will customize their services and costs to fit most business needs. As noted above, to further reduce the time it takes to receive a check from the customer (mail float), many companies will set up several lockboxes throughout a region (east coast/west coast). However, this process relies on the billing system’s ability to assign the right lockbox on the invoice based on the location of the customer. Three types of lockboxes currently in use are: 1. Wholesale lockbox . Used by companies receiving low-volume, large-dollar payments. This is frequently a non-automated function. The bank collects, processes, and deposits receivables directly from the designated post office box, all on the same day. 2. Retail lockbox . Provided to companies with high-volume, lower-dollar payments. After collecting checks from the applicable post office box, banks then use high-speed image scanning equipment to read, capture, and verify remittance information via ICR and OCR technology. That data is then transmitted to the company for AR posting. 3. Electronic lockbox . Used by companies dealing with payment via check, credit card, or automated clearing house credit. All remittance information is typically compiled into one file and submitted to the client for automated AR posting.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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