1. © 2012 McGraw-Hill Ryerson LimitedChapter 21 -1  In 2007, 80 percent of payments were made electronically, only 20% made by cheque  This was done by the CPA – Canadian Payments Association, a non-profit organization  Its members are financial institutions that take cheques and offer deposit facilities  The CPA operates and owns two major payment systems – The Automated Clearing Settlement System (ACSS) and the Large Value Transfer System (LVTS) LO2

2. © 2012 McGraw-Hill Ryerson LimitedChapter 21 -2  How Payments are Cleared ◦ There are three steps in the process of clearing and settling payments: 1. Payment by cheque, debit card, direct deposit, or other means 2. Clearing, or the daily process by which the CPA members exchange deposited payment items and then determine the net amounts due each other 3. Settlement, or the procedure by which CPA members use funds on deposit at the Bank of Canada to meet their net payment obligations to other member institutions LO2

3. © 2012 McGraw-Hill Ryerson LimitedChapter 21 -3  Canadians usually receive credit immediately for the cheques they deposit, even if the cheque is from the other side of the country  This is not so in the US and other countries, where it can take several days before a bank will clear a cheque through the client’s account  As a consequence, Canadian financial managers have significantly fewer opportunities to manage their firm’s float than US managers do! LO2

4. © 2012 McGraw-Hill Ryerson LimitedChapter 21 -4  Payers attempt to create delays in the check clearing process so that they can use their cash for longer  Recipients attempt to remove delays in the check clearing process to get available cash sooner  Source of delay: ◦ Time it takes to mail check: mail float ◦ Time for recipient to process check: processing float ◦ Time for bank to clear check: clearing float LO2

5. © 2012 McGraw-Hill Ryerson LimitedChapter 21 -5 Delays create float. Each arrow represents a source of delay. Recipients try to reduce delay to get available cash sooner. Payers prefer delay so they can use their cash longer. LO2

6. © 2012 McGraw-Hill Ryerson LimitedChapter 21 -6 Controlling Cheque Disbursements  Concentration Banking: System whereby customers make payments to a regional collection centre that transfers funds to a principal bank  Remote Disbursements: paying supplier in one area from an account in the other side of the country  Lock Box System: System whereby customers send payments to a post office box and a local bank collects and processes the cheques  Zero-Balance Accounts: Regional bank accounts to which just enough funds are transferred daily to pay each day’s bills  Electronic Funds Transfers: replacing cheques LO2