Automation of your Receivables

1. Automation of your Receivables Valjean Sanchez Senior Vice President Union Bank of California Product Management April 27, 2006

2. What is Accounts Receivable Check Conversion? • Payer receives a bill with the disclosure: • “Your check will be converted to an electronic funds transfer. By sending your completed, signed check, you authorize <<biller>> to copy your check and to use the account information to make a transfer from your account equal to the amount printed on the check.” (Go through your legal department using Regulation E guidelines!) • Payer sends a check (source document) • Biller receives the check, images and processes the check turning it into an ACH-ARC. • Biller sends ACH-ARC file to their Bank. Their bank processes the ACH-ARC entries and credits the Biller’s account with available funds next business day. • Biller keeps the check no longer than 14 days, then shreds it in a secure way. 2

3. What is Accounts Receivable Check Conversion? • Payer goes to drop a check off in a drop box with notice posted: • “Your check will be converted to an electronic funds transfer. By dropping your completed, signed check into the drop box, you authorize <<biller>> to copy your check and to use the account information to make a transfer from your account equal to the amount printed on the check.” (Go through your legal department using Regulation E guidelines!) • Payer deposits the check (source document) into the drop box. • Biller picks up the check, images and processes the check turning it into an ACH-ARC. • Biller sends ACH-ARC file to their Bank. Their bank processes the ACH-ARC entries and credits the Biller’s account with available funds next business day. • Biller keeps the check no longer than 14 days, then shreds it in a secure way. 3

4. What is Point of Purchase Conversion? • Payer writes a check to present over the counter. • The cashier runs the check through the register (maybe imaging the check.) • An authorization is printed out of the register and it reminds us of signing for a credit card purchase. The print out reads: • “By signing, you authorize <<Company>> to use the account information on this check to make an electronic transfer from your account equal to the amount printed on the check.” and probably, “We will charge you a $$$ for a returned check and you authorize us to collect that fee via the ACH. (Go through your legal department!) • Payer signs. • Cashier returns the check stamped VOID and turns the payment into an ACH –POP. • Biller sends ACH-POP file to their Bank. Their bank processes the ACH entries and credits the Biller’s account with available funds next business day. 4

5. What does an ARC or a POP look like? It starts looking like a check: 2006 Municipality 56.78 Fifty six dollars and seventy eight cents Water Bill |:123456789|:155|||11111|||22222||’ As an ACH-ARC or POP: 6271234567891111122222 5678 155CHARLES CHECKWRITER 0122000491234567 5

6. What does an ARC look like? As an ACH-ARC or POP: 6271234567891111122222 5678 155CHARLES CHECKWRITER 0122000491234567 On Charles’ Checking Statement (normally under the electronic section): 1/10/06 $56.78 155 Municipality Water Pymt 6

7. Check 21 • HR 1474 Text6-05-03Passed House 405-0 • 6-27-03Passed Senate by Unanimous Consent7-15-03 • An Act to facilitate check truncation by authorizing substitute checks, to foster innovation in the check collection system without mandating receipt of checks in electronic form, and to improve the overall efficiency of the Nation's payments system, and for other purposes, do pass with the following: 7

8. What is Check 21 facilitating? • Check 21 makes a substitute check equal to the original check under the law. • What does this not mandate but enable? Paves the way for Image Exchange: • Financial Institutions may reduce dependence on transportation. • Ex. – West Coast Bank accepts a deposit of an East Coast check. Instead of flying the check to East Coast to clear, West Coast Bank images the check and sends it to the East Coast. West Coast agent prints the substitute check and the check is presented for payment. • Financial Institutions may exchange images. • Ex. – West Coast Bank accepts a deposit of an East Coast Bank check. West Coast Bank images the check and transmits it to East Coast Bank for payment based on the image. • Financial Institutions may accept image deposits. • Ex. – Your company images checks and transmits them to West Coast Bank as a deposit. 8

9. What can Check 21 make my checks look like? • The Substitute Check ( a term used in the Check 21 Act) is operationally called an “Image Replacement Document”. An IRD and a Substitute Check may not always be equal. • The substitute check must be machine readable (MICR friendly) just like original checks. 9

10. What can Check 21 make my checks look like? 10

11. What can Check 21 make my returns/ deposited returns look like? • Original substitute check used for a return of a business sized check---front 11

12. What can Check 21 make my returns/ deposited returns look like? • Original Substitute Check used for a return of a business sized check---back 12

13. What Do Payees Want To Do: • Clear payments in a less costly way • Collect funds quickly minimizing float. • Minimize returns. • Streamline: • Handling of payments • Posting of payments to Receivables • Research • Ensure ease of use for employees and customers encouraging acceptance ACH/was check Check 21 Act OTHER TRANSACTIONS ARC POP RCK Substitute Documents/IRD Debit Cards Credit Cards ACH-Web ACH Tel ACH Recurring 13

14. What can Automation do for you? 1.) Better Control over deposits Multiple locations deposit Trips to the bank to deposit Deadlines seem to be extended 2.) Cost savings Reduction in labor Costs for couriers Float over time will be reduced Automated upload to a Receivables System 3.) Improved handling of deposited returns 14

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19. What about: • Continuing Check Functions: • Receive and process checks/paper returns • Continue collection process for returned items. • Expected Reductions: • Savings on forward presentment costs: deposit preparation, deposit fees and transportation to the bank. • Reduction in customer service costs related to check payments, collection fees and check return fees. • Expected increases: • Increases in initial set-up, maintenance of a database, customer service training, customer service related to ARC/POP/Check 21 Image Deposit payments • New costs for truncating and destroying checks and storing images. 19

20. Questions to start the process: • Evaluate your receivables • Who pays me? • How do they pay me? • With what financial instrument? • What is the timing • Review how you process receivables today • Where are my costs today? • Where can I save if I change? • Internal costs • Vendor costs • Bank fees and float impact • Exception Processing What is my volume of eligible items? How do I target my processing to ensure best collection rates? 20

21. How can I convert? • Questions to start the process: • How can I truncate and image the checks? • In-house processing • Outsource • What about image standards? • If I create an image file, what format do I use? • How do I sort my ACH from my non eligible ACH? • How do I address returns? • NSF • Administrative? • How do I address adjustments? 21

22. What else is new? • EDI made easy! • New ANSI standard: EDI EPN STP 820 • UPIC – Enables B2B while reducing fraud • Universal Payment Identification Code 22

23. QUESTIONS? Valjean Sanchez Vice President Product Management