anb 1

Payment and Clearing Systems

anb 2

Payment and Clearing SystemsWhat is important?

• Float

• Value dating

• Availability

• Finality

• Cost

• Security

anb 3

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.

anb 4

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

anb 5

anb 6

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.

anb 7

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

anb 8

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