Introduction to Corporate Finance

19: Cash, Payables and Liquidity Management

those of a recurring nature (such as utility payments and insurance premiums), may come through the

automated clearinghouse (ACH) system, which generally offers next-day settlement with fairly low transaction

costs. The important thing to understand is that the type of collection system used by a company is usually

a function of both the type of business and the customary methods of payment used by that business.

Australian businesses operate their payments mostly through the Australian Payments Clearing Association

(APCA). This is the self-regulatory body for Australia’s payments industry. APCA was established in 1992

to manage and develop regulations, procedures, policies and standards governing payments clearing and

settlement within Australia. In this role, APCA oversees five clearing systems covering cheques, direct

debits and direct credits, aspects of electronic funds transfer at point of sale (EFTPOS) and automatic teller

machine (ATM) transactions, high value payments and bulk cash exchanges between financial institutions.

In February 2010, Australian industry formally established a new communication ‘network cloud’,

called the Community of Interest Network (COIN), to facilitate the exchange of low-value payments.

APCA administers the COIN infrastructure system that provides network services and connectivity for

retail payments. Together, these systems represent around 99% of all Australian non-cash payments.^1

The backbone of the national payments system is information management – that is, the company

needs to know where the money is before it can make use of it. Most large retailers, such as Coles, David

Jones or Woolworths, utilise point-of-sale (POS) information systems that allow them to know, on a daily

basis, how much money has been collected, in what formats (cash, cheque, debit card or credit card) it

was received, and how much of it was deposited at the local bank. The task of moving this money into a

‘concentration’ account is discussed in the section on cash concentration.

Mail-Based Collection System

In a mail-based collection system, the company typically has one or more collection points that process the

incoming mail payments. These processing centres receive the mail payments, open the envelopes, separate

the cheque from the remittance information, prepare the cheque for deposit and send the remittance

information to the accounts receivable department for application of payment. Companies that utilise

standardised, scannable remittance information, such as utilities and credit card processors, can often process

the payments they receive quickly and efficiently using automated equipment. Although many high-volume

processors can justify the cost of the equipment needed for automated processing, other companies may

find that using a lockbox (discussed later) is more cost-effective. However, recent developments in payment

processing equipment have made automated processing available to smaller companies at a reasonable price.

Electronic Systems

Electronic collection systems, first patented in 2000, continue to develop rapidly as both businesses and

consumers better understand their benefits. Key developments in this area are electronic invoice presentment

and payment (EIPP) or e-invoicing (introduced in the chapter-opening What companies do example) in the

business-to-business market, and electronic bill presentment and payment (EBPP) in the business-to-consumer

market. In EIPP and EBPP systems, customers are sent electronic bills that they can pay electronically.

Most of these systems are Internet-based, and are gradually gaining acceptance in the marketplace. The

most successful of the consumer systems offer a consolidator-type service, where customers can go to

one site to view and pay all their bills rather than visiting individual billing sites. Electronic payment

systems have also gained acceptance in the business-to-business environment.

1 APCA 2015 Annual Review. http://www.apca.com.au/docs/default-source/annual-reviews/apca-annual-review-2015.pdf. Accessed 4 January 2016.

Australian Payments

Clearing Association

(APCA)

A self-regulating body that

oversees most of the payments

systems for business in

Australia

LO19.2

mail-based collection

system

Collection system in which

processing centres receive

the incoming mail payments,

separate cheques from

remittance information,

prepare cheques for deposit

and send remittance

information to the accounts

receivable department

electronic invoice

presentment and payment

(EIPP)

A collection system in

business-to-business

transactions, under which

business customers are

sent bills in an electronic

format and can pay them via

electronic means

electronic bill presentment

and payment (EBPP)

A collection system in the

business-to-consumer market,

under which consumers are

sent bills in an electronic

format and can pay them via

electronic means