Back Office Conversion –
Three Powerful Words
Cash is the lifeblood of business and any tool that enhances cash flow is worth investigating. On March 16, 2007, a new way to deposit customer checks was introduced – Back Office Conversion (BOC). BOC promises to enhance the speed and accuracy with which you make your daily deposits.
Back Office Conversion is not a new concept, but it will be new to most businesses. It allows you to convert customer checks into electronic deposits without the need of going to the bank. This has been possible using point of purchase check conversion (POP): the customer writes a check at the time of purchase, the clerk scans and voids it, and returns the cancelled check to the customer. POP has not been widely implemented due to the cost of acquiring the equipment - and this is especially true in multi-lane stores.
BOC, however, overcomes this limitation by requiring only one scanner in the “back office.” With the exception of certain required notices, the process of receiving a customer’s payment doesn’t change from what you have done in the past. It is when the day’s receipts are processed in the office that the check is transformed into an electronic deposit. The deposit information is then transmitted to and processed by your bank, which uses the information to collect funds from its own customers or other banks. All of this is done electronically from the comfort of your office.
Aside from convenience, the benefits of BOC are significant. Unless you deal in large amounts of currency, it virtually eliminates the time wasted in taking a paper deposit to your bank - and time, as they say, is money. For example, assume an employee you pay $9/hour spends one-half hour per day going to the bank. Counting only the actual payroll and taxes, making the daily deposit costs you around $1,300 per year – money you could probably find better uses for!
A second major benefit to BOC is that it puts your money to work faster. At a minimum, you can add one day’s interest earnings, or savings, by using BOC. Much of the time, you can add 2 to 2 ½ days interest earnings. Properly implemented, you will receive immediate credit for the BOC deposit and start receiving interest on those funds. If your bank automatically transfers excess deposits to pay down your line-of-credit, receiving credit earlier can reduce your overall credit costs.
Finally, the need to manually prepare a deposit slip is eliminated. Thus, paperwork is reduced along with the overall cost of processing customer deposits. Reducing the number of items a teller must handle could also reduce monthly bank charges.
Does BOC sound like a good idea for your company? Most likely, it will enhance your profitability, but there are costs associated with this modern miracle. You will need to purchase equipment to implement BOC and train your personnel in its use. The exact cost of the system will depend on the equipment you purchase, which will include a special scanner, possibly software, and an additional computer.
You will also need to change your billing policies to ensure that customers are properly notified that you are using BOC. Because you get nearly real-time access to your customer’s funds, their accounts are debited almost immediately. For this reason, the Federal Reserve Bank requires you to notify customers that the check they write authorizes you to make a one-time electronic transfer from their account. For retailers, this means posting a sign at each cash register and giving a copy of the notice to the customer, typically on the sales receipt. If you are not in a retail business, you will need to adjust your invoices to include the appropriate notification to your customers.
A customer can refuse to let you use his or her check to make an electronic withdrawal, but you also have the right to refuse to accept a customer check as payment. Since the procedure is so new, it will take time to determine whether this becomes an issue.
You will not have to return the check to a customer if you use BOC, but you will be required to keep the check for up to two years. This allows the customer time to dispute unauthorized transfers.
Technological innovations are causing major shifts in the way customers pay bills. Generally, the changes reduce the customer’s ability to use ‘float’ and enhance the seller’s cash flow. Properly implemented, back office conversion can be a powerful tool in managing your cash flow. If you are considering the use of BOC, give us a call to discuss the merits of it before you take the plunge.
Happy April 17th!