FINANCE: Moving More Money Down The Wire

Joseph LaPaglia

Do you remember a time before plastic cards and ATMs? As technologies for improving cash flow continue to evolve, paper check processing is becoming slow and costly. We are again in the midst of major cash flow improvements.

To that end, many banks, along with the Federal Reserve, are advocating electronic fund transfer (EFT), which allows money to be moved from a customer's bank to your bank in payment of receivables or loans. The funds are transferred through the "Auto-mated Clearing House" (ACH) Net-work for the Federal Reserve Bank.

Think about it. How many hours have you spent, evaluating cost-saving methods and equipment, in an effort to have efficient collection routes? The same streamlining can and should be applied to your accounts receivable department.

It's encouraging to see this area of your business grow, but it can be a source of hidden expenses and a cash flow bottleneck for future growth and expansion plans. For example, if you're billing numerous customers for services or using a billing service company, then you are likely paying for one or more employees (yours or theirs).

These workers can spend hours printing bills, sending second no-tices, calling late paying customers, buying necessary forms and paying for increasing postage. As payments arrive, your staff must open the mail, post to the ledger, prepare and make the bank deposits.

Studies by the Federal Reserve have concluded that a manual bil-ling approach, even if used quarterly, can range from $2.75 to $5.00 per customer per billing cy-cle. This figure does not include the cost of waiting 30 to 60 days for payment or account for unpredictable cash flow's negative effect.

Although EFT has been available through local banks for years, it was only considered cost effective for large accounts such as insurance and utility companies that billed more than 1,000 customers regularly. The reason: It involved specially-trained staff at the bank or employed by the business, who manually encoded tapes with the information required by the ACH to make the fund transfers.

Now, thanks to computer technology, the billing process is more cost effective for smaller accounts. In addition, by outsourcing this method through a third party processor, your account data is maintained, processed, encoded electronically, and funds are transferred overnight from your customers' checking accounts to your business account.

Further EFT allows: * improved collection timing, more reliable prediction and management of cash flow and accelerated availability of funds;

* staff reduction in clerical and ac-count reconciliation;

* minimal specialty billing forms and reduced postal costs; and

* improved customer retention and delinquency reduction.

The cost of using EFT to bill and collect payments overnight ranges from $0.20 to $0.30 per account, per billing cycle (see chart), thus saving money on each account versus traditional manual methods.

If your company is selecting an EFT billing vendor (bank or third-party processor) ask: * Is the vendor a member of the Na-tional ACH Association or the Na-tional Automated Payment As-sociation?

* How involved must your company be in the process? Is special software needed to process information or maintain data bases, and who is responsible for account and routing verification?

* What is the lead time for process-ing changes, adds-deletes, and how are non-sufficient funds tran-sactions handled and charged?

* How are you charged for the ser-vices? Are there set-up fees, monthly and yearly maintenance fees or minimum balances for the account? Are you charged one fee per transaction that is all-inclusive or are you charged a low fee per transaction then pay for other services separately?

* Can the chosen company handle your credit card needs as part of their service?

Other EFT uses include payment and payroll transactions in addition to collection transactions. And, as many larger companies already know, the federal government is requiring 941 payments be made electronically by 1997.

For more information on electronic fund transfer, contact: Jo-seph LaPaglia, Cash Flow and Funding of Virginia (CFFV), P.O. Box 36189, Richmond, Va. 23235. Phone/Fax: (800) 875-3290.