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Payment and Clearing Systems
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Payment and Clearing SystemsWhat is important?
• Float
• Value dating
• Availability
• Finality
• Cost
• Security
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Payment and Clearing SystemsValue Dating
• Value is the time when a payor ceases to be able to use the funds in the sense of accruing interest or making a payment and is the time when a beneficiary is able to use the funds in the sense that they may be used to pay down an overdraft, accrue interest or be used to make a payment.
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Payment and Clearing SystemsValue Dating
• Forward Value DatingThe time between a bank being notified of a transaction in
favor of a customer and the customer receiving future value for the item
• Back Value DatingThe time between a bank being notified of a transaction to
the customer’s account and the item being valued on a date prior to the date of the transaction
Payment and Clearing SystemsAvailability
• Availability
The time when the beneficiary actually has access to the
funds i.e. to use to make a payment
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Payment and Clearing Systems
Finality The time after which a payment is considered
to become irrevocable and cannot be returned
without the permission of the beneficiary
account holder.
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Payment and Clearing SystemsCost
• Different payment systems have different features as to Value, Float, Finality and security.
• Because of this they also have different costs
• The Cash Manager therefore has to be careful to use the most cost effective method to get the job done
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Payment and Clearing SystemsSecurity
We need security to avoid
Theft
Fraud
Loss
Error
Contamination
These issues will be considered later but first consider types of Clearing systems