The following article appeared
in the Electric Cooperative Accounting Association's newsletter "Bottom Line".
In-House Remittance Processing:
Is It Right For Our Organization?
To really answer this question, several other questions need to be addressed:
- What is the current cost of payment processing?
- How much productivity can be gained?
- Where are the savings in time and money realized?
- Is my organization large enough to justify the capital expense?
Lets start with the first question.
What is the current cost of payment processing?
The most common misperception is that manually keying
the payments only takes a few hours and can’t be costing very much, therefore there
is not a lot to be saved. To access the actual cost of processing, we need to look at the
payments from the time they come in the door to the time the checks are deposited and
clear the bank. The process can be divided into three steps: prepping the work, keying the
information into the host, and preparing the checks for deposit.
Prepping the work requires the operator to open
the envelope and extract the contents then write the account number on the check and the
amount paid on the stub. Each is placed in its own stack and adding machine tape is run on
both to insure they balance. This process can require several individuals for several
hours each. Please note the account number is written once and the amount written or keyed
three times.
Keying the information to the host usually
involves one person who keys the account number and amounts again, and takes several
hours. In this step the stubs go to be keyed and someone else prepares the checks for the
bank.
Preparing the checks for deposit can take one of
two forms. The checks can be encoded and endorsed using an encoder or they can be sent to
the bank for the bank to encode for a fee. If the checks are encoded /
endorsed in house the
bank will in most cases refund about 4 cents per check. If not, then a person will
manually endorse the checks and the bank will encode them for a fee.
In summary, the labor costs and benefits for each
step, as well as the bank fees, need to be included in the cost of processing.
How much productivity can be gained?
The automated process starts with an extractor, which
can open mail at the rate of 1,200 envelopes per hour. During this process the stub and
check remain together and are placed in one of four stacks: full payments, odd payments,
checks only, and multiple payments. The need to run an adding machine total on the stub
and check is eliminated as is the need to write the account number on the check. This
approach increases productivity 3 to 4 fold.
As the envelopes are opened, the full payment
stack will account for about 70% of the payments. These full payments can be placed in the
auto feeder of the remittance system and begin processing. The remittance system will read
the scan line (eliminating the need to key information to the host), encode the check
(saving 4 cents per check in bank fees), endorse (eliminating a manual step), balance each
transaction and print a tape for the deposit (eliminating keying the adding machine
tapes), print an audit trail on both documents (eliminating writing the account number on
the check), and at the end of the batch print a deposit ticket. For the full payment, or
about 70% to 80% of the payments, this is done without the operator at a rate, depending
on the system selected, 4 to 10 times faster than by hand. Compare this to the
manual process, which entails from 6 to 7 separate steps in which the amount is keyed 5
times and the account number twice. The productivity gain is substantial.
Once all the envelopes are opened, most (or all)
of the full payments are processed, leaving only 20% to 30% of the payments to be keyed.
In these modes the amount is keyed and all the same functions are performed by the system.
Where are the savings in time and money realized?
As stated earlier, the opening process can be
streamlined through the use of an extractor. Couple this with a remittance system that can
process (without an operator) 70% to 80% of the payments in the time it takes the operator
to open the envelopes, and gains are two fold; first, through speed of processing and
second, through the elimination of any keying for a majority of the payments. This process
can be performed by a single person a majority of the time. This results in an
often over looked benefit. Since a single person is responsible for the opening and
sorting process and the finished product, they understand that accuracy is more important
than speed. This process can be performed in a back room away from interruption. This
combines for fewer errors and better customer service.
Is my organization large enough to justify the capital expense?
Over the past five years, systems have increased in
speed and decreased in size and cost. For organizations that could afford a system five
years ago this means a better return on investment and/or improved speed. For the smaller
organizations this means the increase in accuracy, labor, and cost savings are within
reach. How big is big enough? Depends on the motivation for purchasing a system and the
software options that come with it. Options can include:
- automating the reading if meter readings
- storing the payment images on a PC for retrieval in
place of microfilm
- scanning in the capital credit checks instead of
keying them
- automated processing of multiple products on a
single bill.
These are in addition to the benefits of
remittance processing: error reduction, speed, cost savings, and labor reduction.
A good rule of thumb for justifying a system would
be about 15,000 mail payments per month. The volume may be lower if you are processing
meter reads or multiple accounts per bill.
For five year cost model comparing manual
processing and lockbox rates to in-house, call Evan Lewis, National Sales Manager, Omega
Systems of North America at 1-800-951-9364. |