From the May 2009 issue of Treasury & Risk magazine

Putting Checks to the Test

Educational Testing Service (ETS), the $1.3 billion company known for its SAT and GRE tests, had a problem: 20% of the checks sent in with applications were bouncing, and ETS was finding out too late to stop applicants from taking the tests and getting their results. So treasurer Jay W. Basehore and assistant treasurer Dawn Budd called in five top cash management banks to find a solution. Four proposed end-to-end solutions that didn't work. "They tried to fit ETS into a packaged solution, but none of them could tie a check back to our application," Budd says. The fifth--Mellon Bank, now part of Bank of New York Mellon--came up with a plan that was highly customized and manually intensive, but it worked.

Part of the problem was that the variety of application forms couldn't be read automatically. Worse yet, the name on the application was often a student's and the check signer was often a parent--two different names. "We couldn't type in a name and cross-reference it with an application," Budd says.

Now most of the applications and checks are routed to a BoNY Mellon lockbox, where the name of the applicant is manually keyed in along with the check number and payment amount. The crucial pieces of information are linked in a database that ETS can download.

Then the bank presents the checks as electronic debits to the payors' bank accounts under the accounts receivable conversion (ARC) program. If a debit bounces, it is presented two more times before it becomes a return item. Everything happens before the test date, Budd explains, and applicants who don't pay don't get tested. ETS now collects successfully 99.8% of the time, she says.

"This was an unusual case, a client with special needs," says Gary Sefcik, vice president and consumer receivables product line manager at the bank. "We started peeling the onion until we came to a unique solution."

Manual keying is not cheap, but ETS recoups part of the cost by tacking on a $20 fee the first time an ARC presentation fails to clear. Those penalty collections have offset $115,000 of the bank fees involved since the project started in 2005, Budd says. ETS treasury staff is freed from all the application and payment processing. "We had a lot of check encoder machines and calculator tapes all over the place," Budd recalls.

A good solution got even better when remote check deposit was introduced. Even with the lockbox, ETS still receives checks mailed to its own offices, but now treasury can scan the checks and transmit them electronically to the bank.
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