CHAPTER 5: CASH APPLICATION, DEDUCTIONS, AND DISPUTE MANAGEMENT
WIRE TRANSFERS Wire transfer is the fastest—and most expensive—way to electronically transfer funds from one person or entity to another. Wire transfers are used to settle transactions such as high-dollar payments or cross-border currencies. Wire transfers in the U.S. are done via Fedwire, the real-time electronic settlement system of the U.S. Federal Reserve. Fedwire comprises two separate systems—one for transfer of funds and the other for U.S. government securities transfers. In Europe, national funds transfer systems or real time gross settlement systems (RTGS) link to one another through the Trans-European Automated Real Time Gross Settlement Express Transfer System (TARGET), an interbank payment system for cross-border transfers throughout the European Union. Transfers are completed by debiting or crediting reserve balances of depository institutions held at the banks. Wire transfers operate in real time, are irreversible, and each transfer is processed individually. Wire transfers require settlement instructions and are transmitted via a secure system such as CHIPS or Fedwire. The actual transfer is not instantaneous, as it may take 30 minutes up to several hours—and in some cases even days—for the funds to move from the sender’s account to the receiver’s account. (Cross-border transfers usually take longer than domestic ones to process.) The sender pays the fees, and as the funds are being transferred the receiving bank and intermediary banks may deduct fees from the money being transferred so that the recipient receives less than the amount sent by the sender. These fees can make wire transfer an expensive way to receive payment. In addition, the remittance advice is often incomplete or difficult to decipher, causing cash application challenges. Depending on what country is sending or receiving the payment, there are various regulations with which the banks must comply. For instance, a U.S. bank must check the OFAC (Office of Foreign Asset Control) lists prior to making the payment, which may cause the payment to be blocked. BENEFIT TO CUSTOMERS Getting customers to comply with your electronic payment policies may require you to effectively communicate the benefits of electronic payment to them. These benefits include the following: Eliminates or greatly reduces the need for paper check stock (and for customers still using pre-printed checks, the additional printing cost); Eliminates a cumbersome procedure to ensure only authorized personnel have access to the paper check stock;
Eliminates the need for a secured safe/vault to store unused checks; Eliminates the cost of expensive check-printing equipment and updates; Eliminates the cost of postage and mailroom handling; Reduces personnel time needed to create payment to the supplier; Reduces bank charges, since ACH is far cheaper than paper check costs; and Greatly reduces the potential for fraud.
In general, ACH debits are much cheaper than the cost of issuing paper checks and wires.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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