Here you can find a list of definitions for terms associated with cash management. These terms are listed alphabetically, alternatively you can use the find facility within your internet browser (by pressing control + F simultaneously) to search for terms within this page.
Account Analysis
Accounts Payable (A/P)
Short-term/Current liabilities resulting from the purchase of supplier goods and services.
Accounts Payable (Payables) Management
The different strategies that allow companies to manage the cost of the liabilities resulting from the purchase of goods and services.
Account Positioning
Another name for cash positioning. The task of establishing, usually on a daily basis, the expected end-of-day closing cash position.
Accounts Receivable
Short-term/Current assets resulting from the extension of trade credit on goods or services delivered.
Accounts Receivable Conversion
A US ACH transaction format that allows the electronic clearing and settlement of cheques by converting them to electronic transactions at lockboxes or other collection sites. Also known as conversion.
Accounts Receivable Management
The different strategies that can be adopted to manage the collection of outstanding receivables.
ACH
See automated clearing house.
ACH Credit Transaction
An automated clearing house (ACH) transaction where electronic funds transfers are initiated by the payor to transfer value from their bank account to a receiving party's bank account.
ACH Debit Transaction
An automated clearing house (ACH) transaction where] electronic funds transfers are initiated by the payee to debit the payor's bank account and transfer value to the payee's bank account.
ACH Operator
A private company, association of banks or a central bank that processes and distributes ACH transactions received from a financial institution.
ACSS
See automated clearing settlement system.
Advisory Netting
See position netting.
Affinity Card
Type of credit card where the provider gives a donation to a charitable, sport, political or non-profit organisations for each card that is taken out, as well as paying the relevant organisation a small percentage of the monthly amount spent on that card.
ARC
See accounts receivable conversion.
Assured Payment System (APS)
Defined by the Bank of International Settlements and the European Central Bank as an arrangement in an exchang-for-value system under which completion of the timely settlement of a payment instruction is supported by an irrevocable and unconditional commitment from a third party (typically a bank, syndicate of banks or clearing house). See exchange-for-value settlement system.
ATM
See automated teller machine.
Automated Clearing House (ACH) System
A (generally domestic) electronic clearing system in which payment orders are exchanged between financial institutions, via magnetic or, in a limited number of cases, paper-based media or telecommunication networks, and handled by a data-processing centre. ACHs are mainly used for low-value/non-urgent payments, including bulk payments.
Automated Clearing Settlement System (ACSS)
Canada's low-value funds transfer system.
Automated Teller Machine (ATM)
An electromechanical device that enables authorised users, by means of machine-readable plastic cards, to withdraw cash from their accounts and/or access other services, such as balance enquiries, transfers of funds or acceptance of deposits. ATMs may be operated either online, with real-time access to an authorisation database, or offline.
Availability
The moment when funds deposited will become available for use.
Available Balances
The amount of funds available for withdrawal from an account.
Back Value Date
Compensation practice widely used by banks outside the US, whereby the value date of debit and credit transactions are attributed to an account on a date prior to the actual flow of funds.
BACS (Bankers' Automated Clearing Services)
The UK's low-value clearing system. See Cheque and Credit Clearing Company Ltd.
Balance and Transaction Activity
Refers to the reporting of all information relating to current ledger and collected balances, including float history for the last two days, debit and credit details, as well as adjustment items. It may also cover the reporting of average balances and a balance history.
Balance Netting
See single legal account pooling.
Bank Identifier Code (BIC)
An internationally agreed ISO standard, a bank identifier code uniquely identifies a bank's address. Also known as SWIFT address.
Base Currency
Generally it means the currency to which other currencies are compared. In a multicurrency liquidity arrangement, refers to the currency in which the master account is denominated and to which all other currencies are converted. The base currency also serves as the basis for all interest rate calculations.
Batch
In a payment or securities clearing system, the transmission or processing of a group of payment orders and/or securities transfer instructions as a set at discrete intervals of time.
BI-COMP (Banca d'Italia Compensazione)
Italy's electronic low-value funds transfer system. See Rete Dettaglio and Recapiti Locali.
Bilateral Net Settlement System
A settlement system that allows the bilateral net settlement positions of the different participants to be settled between every bilateral combination of participants.
Bilateral Netting
An arrangement involving two parties, generally subsidiaries of the same company, whereby their bilateral obligations are netted. The obligations covered by the arrangement may derive from financial contracts, transfers or both. In practice, netting generally runs on a monthly or other regular cycle where only the net difference remaining at the end of the netting cycle is transferred.
BI-REL (Banca d'Italia Regolamento Lordo)
Italy's large-value RTGS system. BI-REL is linked to TARGET.
BOJ-NET
Japan's low-value funds transfer system.
Book Transfer
Fund transfers directly from one account to another account within a bank.
Bulk Funds Transfer System
See low-value funds transfer system.
Caps
A risk management arrangement whereby limits are placed on the positions that participants in an interbank funds transfer system can take during the business day; they may be set by each individual participant or by the body governing the transfer system; they may be provided in multilateral net, bilateral net or (less commonly) gross terms and can be either a credit cap or a debit cap. Thus, bilateral net credit caps, set by an individual participant, will constitute a ceiling on the credit exposure that the given participant will accept in relation to each other participant. On the other hand, sender net debit caps, which can be put in place by the governing body of the clearing system based on a particular formula, limit the aggregate value of transfers that an individual participant may send to all other participants over and above its incoming transfers. Sender net debit limits may be either collateralised or uncollateralised.
CAR
See courtesy amount recognition.
Card
See cash card, cheque guarantee card, chip card, corporate card, credit card, debit card, delayed debit card, prepaid card, retailer card, travel and entertainment card.
Cash Card
A card that can only be used to withdraw cash from ATMs or cash dispensers.
Cash Concentration
A cash management technique where account balances are physically transferred to/from a single master account for liquidity management purposes. See ZBA, zero-balancing, target balancing, threshold balancing.
Cash Concentration or Disbursement (CCD)
An automated clearing house (ACH) payment format used for concentrating and disbursing funds within an organisation or between organisations.
Cash Concentration or Disbursement Plus Addendum (CCD+)
A CCD format that contains an additional element and is used for US Treasury Vendor Express Program (a US treasury department programme that allows transfers and remittance information to be sent electronically to commercial entities) and corporate-to-corporate payments.
Cash Dispenser
An electromechanical device used to withdraw cash under the form of banknotes (currency) and, in some cases, coins, using machine-readable plastic cards. See automated teller machine (ATM).
Cash Flow Management
The monitoring, analysing and adjusting of cash flow to organisation requirements.
Cash Forecasting
The process of predicting future cash flows through an analysis of historical data for the purposes of liquidity management and financial control.
Cash Letter
A cash letter consists of a number of cheques grouped together for collection purposes and an accompanying list of individual items and control documents.
Cash Management
A set of techniques and strategic policies that aim to achieve optimal use of the cash resources available to an organisation. This includes receivables and payables management as well as liquidity management.
Cash Pooling
A cash management technique aimed at improving liquidity management by pooling an organisation's account balances either under the form of a cash concentration or a notional pooling arrangement.
Cashier's Cheque
See bank draft.
Central Account
Another name for master account.
Central Bank Liquidity Facility
Defined by the Bank for International Settlements as a standing credit facility that can be used by certain designated account holders (e.g. banks) at the central bank. In some cases, the facility can be used automatically at the initiative of the account holder, while, in other cases, the central bank may retain some degree of discretion. The loans typically take the form of advances or overdrafts on an account holder's current account which may be secured by a pledge of securities (also known as Lombard loans in some European countries), by traditional rediscounting of bills or by repurchase agreements.
Central Bank Reporting
Requirement in some countries to report transactions between residents and non-residents to the central bank.
CHAPS
The Clearing House Automated Payment System (CHAPS) is the UK interbank RTGS system providing same day settlement for (typically) low-volume, high-value transactions. As a result of its migration to a new platform, it is also called NewCHAPS. It consists of a GBP (CHAPS Sterling) and EUR (CHAPS Euro) component. The latter is linked to TARGET.
CHAPS Euro
The TARGET-linked component of the UK's interbank RTGS system (NewCHAPS) for euro-denominated domestic and cross-border payments.
CHAPS Sterling
The component of the UK's interbank RTGS system (NewCHAPS) for domestic sterling-denominated high-value/urgent payments.
Cheque
A written order from one party (the drawer) to another (the drawee, normally a bank) requiring the drawee to pay a specified sum on demand to the drawer or to a third party specified by the drawer. Cheques are widely used for settling debts and withdrawing money from banks. See draft.
Cheque and Credit Clearing Company Ltd
The UK paper-based low-value funds transfer system. See BACS.
Cheque Clearing
The process by which a cheque is presented to and accepted by the drawee bank, the institution on which it is drawn.
Cheque Guarantee Card
A card issued to the cheque account holder as part of a cheque guarantee system. This function may be combined with other functions in the same card e.g. those of a cash card or debit card. See cheque guarantee system.
Cheque Guarantee System
A system to guarantee cheques, usually up to a specified amount, in which by merchants can validate cheques either on the basis of a card issued to the cheque writer or through a central database accessible to merchants. Validated cheques are guaranteed by the issuer of the guarantee card, the drawee bank or the system operator.
Cheque Imaging
Scanning technology that allows cheques and other paper-based documents to be digitalised so as to allow electronic clearing. See cheque truncation.
Cheque Truncation
The process that allows the relevant clearing information contained on a paper cheque to be captured electronically and sent through the clearing system.
Chip Card
Also known as an IC (integrated circuit) card or smart card. A card containing one or more computer chips or integrated circuits for identification, data storage or special-purpose processing that enables personal identification number (PIN) validation, purchases authorisation, account balance verification and personal records storage.
CHIPS (Clearing House Interbank Payment System)
Operated by the New York Clearing House Association, CHIPS is an independent real-time multilateral netting system in the USA with immediate payment finality that permits participating financial institutions settle high-value domestic and cross-border USD-denominated payments.
Cleared Balance
Funds in an account available for use.
Clearing/Clearance
The process of transmitting, reconciling and, in some cases, confirming payment orders or security transfer instructions prior to settlement, possibly including netting of instructions and calculating final positions for settlement. In the context of securities markets, this process is often referred to as clearance. Sometimes the terms are used (imprecisely) to include settlement.
Clearing Float
The delay between the point in time when a cheque or draft is deposited by the payee at the bank and the point in time when the payor's account is debited. See cleared balance.
Clearing for the 21st Century Act (Check 21)
A federal US law that aims to facilitate cheque truncation by creating a new negotiable instrument: the so-called substitute check. Under the law which takes effect as at 28 October 2004, banks can truncate original cheques and process cheque information electronically as well as deliver substitute checks to banks that want to continue receiving paper cheques. However, the new law does not require banks to accept cheques in electronic form or to create substitute checks.
Clearing House
A formal or informal association of clearing banks in a given geographic area that aims to facilitate the exchange of items drawn on participants. This occurs via a central location or central processing mechanism through which financial institutions agree to exchange payment instructions or other financial obligations (e.g. securities). The institutions settle for items exchanged at a designated time based on the rules and procedures of the clearing house. In some cases, the clearing house may assume significant counterparty, financial or risk management responsibilities for the clearing system. See clearing/clearance, clearing system.
Clearing System
A set of procedures where financial institutions present and exchange data and/or documents relating to funds or securities transfers with other financial institutions. The procedures often also include a mechanism for the calculation of participants' bilateral and/or multilateral net positions with a view to facilitating the settlement of their obligations on a net or gross basis.
Close-Out Netting
The European Central Bank defines it as a special form of netting which occurs following some predefined event such as default. Close-out netting is intended to reduce exposures on open contracts if one party meets certain conditions specified by the contract (e.g. becomes subject to insolvency procedures) before the settlement date. Also referred to as default netting, open contract netting or replacement contract netting.
Collection Float
The interval between when a cheque or draft is mailed and the time the payee receives available funds in its account.
Compensating Balances
Balances held by a company in the form of collected balances to provide indirect compensation for bank services or loans provided.
Concentration Account
See master account.
Controlled Disbursement
A cash management service that provides same-day notification of the cash amount of cheques that will clear against the controlled disbursement account that working day.
Conversion
See accounts receivable conversion.
Corporate Card
See travel and entertainment card.
Correspondent Banking
An interbank arrangement where one bank provides payment and other services to another bank, which is generally located in another financial centre. Payments through correspondents are often executed through reciprocal accounts (so-called nostro and loro accounts), to which standing credit lines may be attached. Correspondent banking services are primarily offered on a cross-border basis but are also known as agency relationships in some domestic contexts. A 'loro' account is the term used by a correspondent to describe an account held on behalf of another/foreign bank; the same account is regarded as a 'nostro' account by the other/foreign bank.
Country Items
Cheques or drafts drawn on banks located outside areas serviced by a central bank subsidiary, city or regional cheque-processing centre (RCPC).
Courtesy Amount Recognition (CAR)
The technical process used in the United States to convert the hand-written data on cheques and other paper-based documents into electronic data.
Credit Caps
See caps.
Credit Card
A card which provides the holder with a line of credit. It enables the holder to make purchases and/or withdraw cash up to a pre-arranged ceiling; the credit granted may have to be settled in full by the end of a specified period or may be settled in part, with the balance taken as extended credit. Interest is charged on the amount of any extended credit and the holder is sometimes charged an annual fee.
Credit Card Company
A company that owns the trademark for a particular credit card brand. Generally, the credit card company also offers its members card-related marketing, processing and other services.
Credit Transfer
A payment order or sequence of payment orders effected for the purpose of placing funds at the disposal of the beneficiary. Both the payment instructions and the funds covered by the payment instructions move from the bank of the payor/originator to the bank of the beneficiary, possibly with several other banks acting as intermediaries and the use of one or more credit transfer systems.
Credit Transfer System (or Giro System)
A funds transfer system via which credit transfer (or giro) orders, related information and funds are transmitted for the purpose of executing credit transfers (or bank/postal giros).
Cross-border Sweeping
A cash management technique used to automatically concentrate funds derived from different countries into a bank account located in a different jurisdiction.
Cross-guarantees
Guarantees given by the participants in a notional pooling scheme to the bank providing the notional pooling service that they will honour any outstanding dues in the event of the failure of one of the members to fulfil its duties. Cross-guarantees may have tax implications.
Currency Bank Accounts (Foreign Currency Bank Accounts)
Bank accounts that are denominated in a different official currency to the one that is legal tender in the country where the accounts are held.
Currency Clearings
Refers to the UK's paper-based currency clearing facility for cheques, drafts, bankers' payments and mandated currency debits in USD drawn on or payable at certain branches of the UK's clearing banks.
Data Exchange
An arrangement in which a financial institution or a third-party reporting service gathers and consolidates account balances and transactions from various financial institutions with which the company has accounts.
Days Billing Outstanding (DBO)
See days sales outstanding (DSO).
Days Sales Outstanding (DSO)
A credit measurement ratio calculated by dividing accounts receivable outstanding at the end of time period by the average daily credit sales for the period. Also known as days billing outstanding (DBO).
DDA
See demand deposit account.
Debit Caps
See caps.
Debit Card
A card enabling the holder to have purchases directly paid for by funds on an account at a deposit-taking institution (this may sometimes be combined with another function e.g. that of a cash or cheque guarantee card).
Debit Transfer System (or Debit Collection System)
A funds transfer system in which debit collection orders made or authorised by the payor move from the bank of the payee to the bank of the payor where the payor's account is charged (debited); for example, cheque-based systems are typical debit transfer systems.
Delayed Debit Card
A card issued by banks allowing the holder to charge an account up to an authorised limit. It enables purchases to be made, but does not offer extended credit, with the full amount of the debit incurred having to be settled at the end of a specified period. The holder is usually charged an annual fee.
Deletion
A mechanism where some or all transfers to/from a defaulting participant are excluded from the settlement process. In a netting scheme, this entails the recalculation of other participants' bilateral and/or multilateral net positions. See unwinding.
Demand Deposit Account (DDA)
A type of non-interest bearing bank account available in the United States and Canada that allows the account holder to transfer funds to a third party via cheque, wire transfer, or an automated clearing house (ACH) transfer and to withdraw funds on demand.
Deposit Float
The sum of each cheque or draft deposited multiplied by its availability in days.
Designated-time Net Settlement (DNS) System
A net settlement system where final settlements occur at designated times.
Direct Collection
The recovery of outstanding receivables by a third party in exchange for a fee, which is usually a percentage of the outstanding amount.
Direct Credit
An electronic transfer of funds directly into a bank account.
Direct Debit
A debit pre-authorised by the payor on the payor's bank account initiated by the payee. Sometimes referred to as pre-authorised payment (PAP).
Direct Deposit
The electronic transfer of funds directly into the beneficiary's account. Widely used for the payments of salaries, tax refunds, etc.
Direct Participant in an IFTS
A participating institution in an interbank funds transfer system (IFTS) that is responsible to the settlement agent (or to all other direct participants) for the settlement of its own payments, those of its customers, and those of the indirect participants on whose behalf it is settling.
Direct Send
An alternative to other cheque clearing processes in which banks send cash letters directly to the paying bank or the relevant central bank branch.
Disbursement
The payment of expenses or discharge of a monetary obligation.
Disbursement Float
The time interval or cash amount outstanding between the time a payor posts a cheque and the time the bank debits the payor's account.
Dishonour
Refers to the refusal to accept cheques/drafts.
Distribution Method
A forecasting technique used in cash scheduling wherein the distribution of cash flow over a given period is estimated.
Drawee Bank
The bank on which a cheque or draft is drawn – the payor's bank.
EBA
See Euro Banking Association.
EC Directive 97/5EC on Cross-border Credit Transfers
Relates to cross-border credit transfers worth up to the equivalent EUR50,000 within the EU and the European Economic Area (EEA). It stipulates that transacting parties located in two different countries can share the costs; alternatively, either the ordering party or the beneficiary fully bears the cost, irrespective of which country they are located in. The initiating party also has to receive prior notification of the cost of the transfer. See Regulation on Cross-Border Payments in Euro.
Electronic Check
In the USA, designates any form of ACH debit transaction that is originated either electronically or over the phone or which has been (partially) converted into an electronic format.
Electronic Funds Transfer (EFT)
The movement of funds by non-paper means (i.e. electronically), usually through a payment system such as an ACH network or RTGS system.
Electronic Lockbox
A collection service that records the receipt of incoming wire transfer and ACH payments, reformats the data, and transmits it to the company in whatever format it desires.
Electronic Purse
A reloadable multi-purpose prepaid card which aims to facilitate small retail or other payments by not having to rely on the availability of coins. Electronic purse functions are increasingly being integrated into standard payment cards. Also known as e-purse. See multi-purpose prepaid card.
EFT
See electronic funds transfer.
EFTPOS
See point of sale (POS).
EMZ (Elektronischer Massenzahlungsverkehr)
Germany's paper-based low-value funds transfer system. See RPS.
Endorsee
The individual or legal entity that acquires ownership of a specific amount of funds through the endorsement of a cheque, bill of exchange or promissory note.
Endorsement
A signature required for the movement of funds by cheque, bill of exchange or promissory note.
Endorser
The individual/legal entity that signs a document (i.e. cheque) and by doing so relinquishes ownership to a specific amount of funds.
End-of-day Gross Settlement Systems
The European Central Bank defines end-of-day gross settlement systems as funds transfer systems in which payment orders are received one-by-one by the settlement agent during the business day, but in which the final settlement takes place at the end of the day on a one-by-one or aggregate gross basis. This definition also applies to gross settlement systems in which payments are settled in real time but remain revocable until the end of the day.
EPC
See European Payments Council.
E-Purse
See electronic purse.
Euro (EUR)
The European single currency. The euro has been adopted by Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.
EURO1
Run by the Euro Banking Association's clearing arm, EURO1 is a high-value clearing for EUR-denominated cross-border transactions. Settlement occurs via the European Central Bank. See STEP1 and STEP2.
Euro Banking Association (EBA)
Formerly known as the ECU Banking Association, the Euro Banking Association regroups most of the larger banks within the European Union and provides clearing services for both high-value and low-value EUR-denominated cross-border transactions. See EURO1, STEP1 and STEP2.
European Payments Council (EPC)
Organisation set up by the European banking industry with the express aim of create a Single European Payments Area (SEPA).
Face-to-Face Payment
A payment that is made by the physical exchange of instruments by the payer and the payee, both of which are in the same physical location.
Failed Transaction
A transaction (e.g. a funds or securities transfer) that does not settle on the contractually-fixed time. Failure is generally due to technical or temporary reasons.
FEDACH
The USA's low-value funds transfer system.
Fedwire
The real-time same-day value electronic funds transfer system for high-value/urgent payments operated in the US by the Federal Reserve.
Final (Finality)
Applied to a transaction/trade which is irrevocable and unconditional.
Final Settlement
A settlement that is irrevocable and unconditional.
Final Transfer
A transfer that is irrevocable and unconditional and results in a discharge of the obligation to make the transfer.
Float
Time interval that occurs between the start and completion of a specific transaction (payment or collection). Certain types of float can be quantified and expressed in monetary terms.
Foreign Currency Bank Accounts
See currency bank accounts.
Forward Value Date
Compensation practice commonly used by non-US banks where credits to a customer's account statement will relate to a date later than the actual date the funds were received.
Full Reconciliation
A financial institution service that matches cheques paid against cheques issued by the company. At the end of the matching process, the bank generates a list of all cheques paid and those outstanding in cheque serial number order.
Funds Transfer System (FTS)
Defined by the European Central Bank as a formal arrangement, based on private contract or statute law, with multiple membership, common rules and standardised arrangements, for the transmission and settlement of obligations (expressed under the form of money) arising between the members. See interbank funds transfer system (IFTS).
Giro
See credit transfer.
Giro System
See credit transfer system.
Gridlock
Defined by the Bank for International Settlements as the situation that can arise in a funds or securities transfer system in which the failure of some transfer instructions to be executed (because the necessary funds or securities balances are unavailable) prevents a substantial number of other instructions from other participants from being executed. See failed transaction, queuing, systemic risk.
Gross Settlement System
A transfer system in which the settlement of funds or securities transfers occurs individually on an order-by-order basis according to the rules and procedures of the system, i.e. without netting debits against credits. See net settlement system, real-time gross settlement (RTGS) system.
Home Banking
Banking services which a retail customer of a financial institution can access using a telephone (either fixed-line or mobile), a television set, a terminal or a personal computer.
IBAN
See international bank account number.
IC Card
See chip card.
Idle Balances
Funds left in non-interest bearing accounts.
Imprinter
A mechanical device that reproduces the name and account number of a cardholder on a paper sales slip. See imprinter voucher, POS.
Imprinter Voucher
In card transactions, a sales slip to be signed by the customer on which the name and card number of the customer are imprinted. See imprinter.
Indirect Participant in an IFTS
A participant in an IFTS which does not settle its own payment on a gross or net payment basis but settles them through a direct participant. See direct participant in an IFTS.
Interbank Funds Transfer System (IFTS)
A funds transfer system in which most (or all) direct participants are credit institutions. See funds transfer system (FTS).
Interest Rate Enhancement (Interest Rate Netting or Interest Rate Optimisation)
A cash management practice that acts as a substitute for notional pooling in several European countries where tax or regulatory constraints limit the potential for cost-effective notional pooling. As is the case for notional pooling, interest rate enhancement aims to view the account balances of a company or its subsidiaries as a whole for the purposes of interest calculation. However, unlike notional pooling, there is no formal scheme set up to allow the systematic offsetting of the various participants' credits and debits.
Interest Rate Optimisation
See interest rate enhancement.
Interest Rate Tiering
Method used for calculating interest whereby interest is modulated according to certain ceilings.
Interlinking
Within the TARGET system, the interlinking mechanism provides common procedures and the infrastructure which allow payment orders to move from one domestic RTGS system to another domestic RTGS system. See TARGET.
International Bank Account Number (IBAN)
An internationally agreed ISO standard, IBAN is an international account identifier used internationally to uniquely identify the beneficiary bank account number in cross-border payments.
International Payment Instruction (IP)
A pre-printed paper form containing credit transfer instructions form which, combined with an invoice, allows the recipient to effect an automated credit transfer. IPs are generally used on a cross-border basis.
Intra-day Credit
See daylight credit.
IPI
See international payment instruction.
Irrevocable and Unconditional Transfer
A transfer which cannot be revoked by the transferor and which is final.
Know-Your-Customer
The underlying rule of all anti-money laundering regulations, requiring financial and other intermediaries engaged in financial transactions to rigorously check their customers' identity.
Lagging
Delaying cross-border payments to take advantage of expected foreign exchange rate/interest rate movements.
Large-value Funds Transfer System
A funds transfer system primarily dedicated to large-value and high priority funds transfers. Although, as a rule, no minimum value is set for the payments they carry, the average size of payments passed through such systems is usually relatively large. The most important large-value funds transfer systems are those of the G7 countries. Namely: BI-REL, CHAPS, CHIPS, Fedwire, the Large Value Transfer System, PNS, the RTGS system, RTGSplus, TBF and the European cross-border systems: EURO1 and TARGET. Large-value funds transfer systems are also designated as wholesale funds transfer systems. See low-value funds transfer system.
Large-value Payments
Payments, generally involving very large amounts, which are mainly exchanged between banks or between participants in the financial markets. This type of payment generally requires urgent and timely settlement. See large-value funds transfer system.
Large Value Transfer System (LVTS)
Canada's high-value/urgent clearing system.
Leading
Accelerating cross-border payments to take advantage of expected foreign exchange rate/interest rate movements.
Ledger Balance
The balance in a bank account at close of business resulting from all items that have been deposited or cleared through the account minus any debits or withdrawals.
Lifting Fees
Fees levied on the movement of funds on between residents and non-residents, calculated as a percentage of the transaction value.
Limited-purpose Prepaid Card
A prepaid card with a limited number of functions. Its use is often restricted to a number of points of sale within a well-identified location (Generally linked to a particular corporation or organisation. In the case of single-purpose prepaid cards, the card issuer and the service provide tend to be identical e.g. cards used in public telephones). See prepaid card.
Liquidity
The ability to turn an asset into cash at short notice without significant loss of market value. Also refers to a company's ability to pay its obligations when they become due.
Liquidity Management
The set of policies and strategies that aim to improve the returns achieved from an organisation's liquid assets and to ensure that short-term liquidity and funding needs are met. See cash concentration, notional pooling.
Lockbox
A collection and processing system where a credit institution or a third party receives, processes, and deposits an organisation's mail receipts so as to accelerate the organisation's collection process. Also known as a lockbox processor.
Loro Account
See correspondent banking.
Loss-sharing Rule (or Loss-sharing Agreement)
Defined by the Bank of International Settlements as an agreement between participants in a transfer system or clearing house arrangement regarding the allocation of any loss arising when one or more participants fail to fulfil their obligation. The arrangement stipulates how the loss will be shared among the parties concerned in the event that the agreement is activated.
Low-value Funds Transfer System
A funds transfer system which handles a large volume of payments of relatively low value in such forms as cheques, credit transfers, direct debits, ATM and EFTPOS transactions. Also known as retail fund transfer system or bulk fund transfer system. Electronic low-value funds transfer systems are also known as Automated Clearing Houses (ACHs). The most important low-value clearings are those of the G7 countries: namely the Automated Clearing Settlement System (ACSS), BACS, BI-COMP, BOJ-NET, EMZ, the Cheque and Credit Clearing Company Ltd, FedACH, Rete Dettaglio, RPS and SIT. See large-value funds transfer system.
Magnetic Ink Character Recognition (MICR)
Facility of automating paper-based documents such as cheques through the use of magnetic ink, where all characters and numbers written in magnetic ink are converted into an electronic format. In the case of cheques, essential data are written in magnetic ink and regrouped in one line on the bottom of the cheque, the so-called MICR line. See magnetic character recognition (MICR).
Mail Float
The time interval between the time a cheque or draft is mailed and its receipt by the addressee.
Master Account
Account in a cash pooling structure used to fund zero/target/threshold balance accounts automatically or concentrate funds from participating accounts automatically. The master account may be interest-bearing. A master account is also known as central account or concentration account.
MICR
See magnetic ink character recognition.
Minimum Standards of the Lamfalussy Report (Lamfalussy Standards)
The six minimum standards for the design and operation of cross-border and multi-currency netting schemes or systems. The standards are:
Money
Refers to cash (currency and coin) in official currency (i.e. legal tender) guaranteed by the relevant government.
Money Laundering
The FATF (Financial Action Task Force) defines money laundering as the processing of criminal proceeds to disguise their illegal origin.
Money Order
An instrument used to remit money to the named payee, often used when the remitter does not have an account to pay bills or transfer money. There are three parties to a money order - the remitter (payor), the payee and the drawee. Drawees are usually financial institutions or post offices. Payees can either cash in their money orders or present them to their bank for collection.
Multibank Reporting
An arrangement in which a financial institution or third-party reporting service gathers, consolidates, and reports account balances and transactions from various financial institutions with which the company maintains accounts.
Multicurrency Accounts
An account that allows credit and debit transactions in any readily convertible currency to and from one designated account.
Multicurrency Cross-border Pooling
A cash management technique in which excess funds from companies' accounts in different countries, which are denominated in different currencies, are concentrated and used to offset deficits for the purpose of determining interest earned or owed.
Multicurrency One-country Pooling
A cash management technique in which excess funds from companies' accounts in the same country, which are denominated in different currencies, are concentrated and used to offset deficits for the purpose of determining interest earned or owed.
Multilateral Net Settlement Position
The sum of the value of all the transfers received by a participant in a net settlement system during a certain period of time minus the value of the transfers made by the participant to all other participants. If positive, the participant has a multilateral net credit position; if negative, the participant has a multilateral net debit position.
Multilateral Net Settlement System
Defined by the Bank of International Settlements as a settlement system in which each settling participant settles (typically by means of a single payment or receipt) the multilateral net settlement position which results from the transfers made and received by it, for its own account and on behalf of its customers or non-settling participants for which it is acting. See direct participant in an IFTS, multilateral net settlement position, multilateral netting.
Multilateral Netting
An arrangement among three or more parties to net their respective obligations. The obligations covered by the arrangement may arise from financial contracts, transfers or both. The multilateral netting of payment obligations normally takes place in the context of a multilateral net settlement system; whereby the cross-border payments of the various subsidiaries are converted into a common reference currency before netting takes place. See bilateral netting, multilateral net settlement position, multilateral net settlement system.
Net Credit/Debit Position
A participant's net credit or net debit position in a netting system is the sum of the value of all the transfers the participant has received up to a particular point in time minus the value of all the transfers the participant has sent. In case the difference is positive, the participant is in a net credit position; however, if the difference is negative, then the participant is in a net debit position. The net credit or net debit position at settlement time is defined as the net settlement position. These net positions may be calculated on a bilateral or multilateral basis.
Net Debit Cap
See caps.
Netting
An agreed offsetting of positions or obligations by trading partners or participants. The netting reduces a large number of individual positions or obligations to a smaller number of obligations or positions, thereby reducing the overall credit, liquidity and settlement risk. Netting may take several forms which have varying degrees of legal enforceability in the event of default of one of the parties. See bilateral netting, multilateral netting, novation, position netting, substitution.
Netting By Novation
Netting by novation agreements allow for individual forward-value contractual commitments, such as foreign exchange contracts, to be discharged upon confirmation and replaced by new obligations, all of which form part of a single agreement. Amounts due under a discharged contract will be added to running balances due between the parties, in each currency and at each future value date.
Net Settlement
The settlement of obligations or transfers between or among parties on a net basis. See netting.
Net Settlement System
A funds transfer system in which settlement operations are effected on a bilateral or multilateral net basis.
Non-resident Bank Accounts
Bank accounts held by individuals or legal entities that have no claim to residency in the country in which these bank accounts are held. See resident bank accounts.
Nostro Account
See correspondent banking.
Notional Pooling
A cash management technique where account balances are offset without physical movement or co-mingling of funds, for the purpose of interest compensation by the bank. See pooling.
Novation
The satisfaction and discharge of existing contractual obligations by replacement with new obligations (for example, in order to replace gross with net payment obligations). The parties subject to the new obligations may be identical to those parties that have the existing obligations or, as is the case with some clearing house arrangements, a substitution of parties may additionally occur. Netting by novation can take the form of comprehensive novation netting or matched pair novation netting, i.e. only involving the same pair of currencies. See substitution.
Offline
In the context of the payment and settlement systems, this term generally refers to the transmission of transfer instructions by users, through voice, written or telefaxed instructions, that must subsequently be recorded into a transfer processing system. The term may also refer to the storage of data by a transfer processing system on a magnetic tape or disk. See online.
Offset
Ability to set assets against liabilities in multiple bank accounts. Also used in netting transactions.
Online
In the context of payment and settlement systems, this term generally refers to the transmission of transfer instructions by users, through electronic means. The term may also refer to the storage of data by a transfer processing system on a computer database so that the user has direct and, in many cases, real-time access to the data through using terminals. See offline.
Open Offer Netting
'Netting by open offer' allows a third party, such as a clearing house, to contractually enter into a transaction agreed by two separate entities by extending an 'open offer' to the parties concerned. Upon agreement of the terms of the transaction and provided certain pre-agreed conditions are met, the third party automatically and immediately becomes interposed in that transaction. Two separate, equal and opposite contractual obligations are created, between the clearing house and each of the parties. If all pre-agreed conditions are met, at no stage does a direct contractual obligation exist between the two entities.
Optical Character Recognition (OCR)
Technical process that allows written text to be converted into electronic format by the use of computer-scanning technology. Is used to capture electronically information on cheques and other paper-based documents. Similar to magnetic ink character recognition (MICR).
Overlay Bank
The bank that provides an additional layer of bank accounts within a country between operating local accounts and pooling structure accounts, with the aim of sweeping (notionally or effectively) the resulting balance cross-border into a central liquidity pool.
Oversight of Payment Systems
Part of a central bank's remit, the main function of payment systems oversight is to promote the smooth functioning of payment systems and to protect the financial system from potential 'domino effects' that could be triggered by the credit or liquidity problems encountered by one or more participants in the payment system. Payment systems oversight focuses on a system as a whole rather than on individual participants.
Pan-European Cash Management
The co-ordination of some or all of a company's or group's European cash management using either one or two major banks; one lead cash management bank and a series of banks; an association or payments club; or multibanking with a bank-independent system.
Paperless Credit Transfers
Credit transfers that do not entail the exchange of paper documents between banks. Other credit transfers are referred to as paper-based credit transfers.
Participant in/Member of an FTS
Defined by the Bank of International Settlements as a party which participates in a transfer system. This generic term refers to an institution which is identified by a transfer system (e.g. by a bank identification number) and is allowed to send payment orders directly to the system or which is directly bound by the rules governing that transfer system. See direct participant in an IFTS, indirect participant in an IFTS.
Payable Through Draft (PTD)
A draft that is only payable via a nominated bank. Depending on the conditions attached to the draft, the nominated bank may be the paying bank or only act as the collecting bank that presents the draft for payment. See draft.
Payee
The party that is paid or due to be paid; especially the party to which a cheque is made payable.
Payment
The payor's transfer to the payee of a monetary claim on a party acceptable to the payee. Typically, claims take the form of banknotes or deposit balances held at a financial institution or at a central bank.
Payment Association/Club
A group of banks working together to provide collectively co-ordinated and/or cross-border cash management services.
Payment Card
Generic term for any type of card that can be used to make a payment.
Payment Float
The interval between the receipt of an invoice by the payor, including the credit period, and the time the payor's account is charged for funds in payment of the invoice. May also be quantified and expressed in cash amounts.
Payment Netting
A form of netting, involving payment instructions in the same currency and with the same due date, where the party with the largest aggregate balance settles the difference resulting from the netting operation. Also called settlement netting.
Payment Order (or Payment Instruction)
An order or message requesting the transfer of funds (in the form of a monetary claim on a party) from one party to another party. The payment order can be either a credit transfer or a debit transfer.
Payment System
The European Central Bank and the Bank for International Settlements define a payment system as a set of instruments, banking procedures and, typically, interbank funds transfer systems that facilitate the circulation of money.
Payor
The party that makes a payment, especially the party that issues a cheque.
PE-ACH (Pan-European Automated Clearing House)
To be created through existing domestic ACHs becoming facilitators for PE-ACH. STEP2 adoption was the first stage. The development of pan-european direct debit will be the next step.
Personal Identification Number (PIN)
A sequence of alphanumeric/numeric characters that identifies someone accessing an electronic information system.
PNS (Paris Net Settlement)
France's large-value net settlement system.
Point of Sale (POS)
The use of payment cards at a retail location (point of sale). The relevant payment information is captured either by paper vouchers or by electronic terminals. Increasingly, the latter can also transmit the information; this process is called 'electronic funds transfer at the point of sale' (EFTPOS).
Pooling
Position Netting (or Advisory Netting)
The netting of instructions relating to obligations between two or more parties, as a result of which neither satisfies nor discharges those original individual obligations. This is also referred to as payment netting in the case of payment orders.
Positive Pay
A service that aims to curb cheque fraud. Under positive pay, cheques are submitted to the bank with an accompanying list detailing the cash amounts and the serial numbers of the cheques issued. The bank will only pay cheques with serial numbers and cash amounts that match those in the issue file. Also known as match pay.
Pre-authorised Payment (PAP)
See direct debit.
Prepaid Card
A card which contains real purchasing power, for which the customer pays the issuer of the card in advance.
Processing Float
The delay between the time the payee or processing site receives a cheque or draft and the time the cheque or draft is deposited.
Provisional Credit
Credit given when a cheque is deposited.
Provisional Transfer
A conditional transfer in which one or more parties retain the right by law or agreement to revoke the transfer.
PTD
See payable through draft.
Real-time Gross Settlement (RTGS) System
A gross settlement system in which processing and settlement take place in real time (continuously).
Real-time Transmission, Processing or Settlement
The transmission, processing or settlement of a funds or securities transfer on an individual basis as soon as the transfer has been initiated.
Receipts and Disbursements Method
Basic short-term cash forecasting technique based on listings of cash receipts and cash disbursements.
Receiver Finality
An analytical term rather than operational or legal term, defined by the European Central Bank and the Bank for International Settlements as the point at which an unconditional obligation arises on the part of the receiving participant in a transfer system to make final funds available to its beneficiary customer on the value date. See final settlement.
Regulation CC (Reg. CC)
The set of Federal Reserve rules that govern cheque collection and availability of funds in the USA.
Regulation D (Reg. D)
The set of Federal Reserve rules stipulating the reserve requirements for deposit-taking (depository) institutions in the USA.
Regulation E (Reg. E)
The set of Federal Reserve rules that govern electronic credit transfers in the USA.
Regulation K (Reg. K)
The set of Federal Reserve rules that govern international banking operations of US banking organisations and the operations of foreign banks in the United States.
Regulation on Cross-border Payments in Euro (Regulation EC No 2560/2001)
This regulation stipulates that all EUR-denominated electronic cross-border transactions (i.e. credit transfers, card payments and cash withdrawals) within the EU below EUR12,500 cannot attract higher charges than the equivalent domestic transactions. As of July 2006, the threshold for payments to which this regulation applies will be raised to EUR50,000. Since July 2002, this regulation has also covered qualifying payments in SEK. See EC Directive 97/5EC on cross-border credit transfers.
Regulation Q (Reg. Q)
The Federal Reserve rule that prohibits the payment of interest on demand accounts in the USA.
Regulation Z (Reg. Z)
The set of Federal Reserve rules that govern consumer lending in the USA.
Remote Access to an IFTS
The facility for a credit institution established in one country (home country) to become a direct participant in an interbank funds transfer system (IFTS) established in another country (host country) and, for that purpose, to have a settlement account in its own name with the central bank in the host country, without necessarily having established a branch in the host country.
Remote Disbursement
Cash management technique to delay payments by writing cheques and drafts drawn on bank branches in remote locations.
Remote Participant
An institution established in one country (home country) which participates in a transfer system of another country (host country) without necessarily having established a branch in the host country. In the event that the remote participant has established a branch in the host country, it does not participate in the transfer system of the host country via this branch.
Remote Payment
A payment carried out through the sending of payment orders or payment instruments (e.g. by mail). Contrast with face-to-face payment.
Repetitive Transfers
Repeated electronic transfers in which only the amount and date change in each transfer, with all the other details (debit and credit parties as well as transaction description) remaining identical.
Report Card
A set of performance measures applied uniformly to a provider to measure the quantitative ranking of a provider's level of service and customer responsiveness. The use of reports cards is widely applied to measure financial institutions' service levels.
Resident Bank Accounts
Bank accounts held by individuals or legal entities who are residents of the country in which these accounts are held. See non-resident bank accounts.
Retail Funds Transfer System
See low-value fund transfer system.
Retail Lockbox
Lockboxes set up to receive a large number of low-value cash remittances, usually from consumers. Receipts are usually accompanied by remittance advices that are automatically processed.
Retail Payments
Retail payments are primarily consumer payments of relatively low value and low urgency, as opposed to large-value payments.
Retailer Card
A card issued by retailers for usage in specified stores, generally with an associated line of credit for the cardholder.
Rete Dettaglio
Italy's paper-based low-value funds transfer system. See BI-COMP.
Reverse Positive Pay
An anti-cheque fraud service where the bank transmits a file of cheques presented for payment to the issuer to allow the issuing organisation to check these against its own data. The company contacts the financial institution if any items are to be returned. See positive pay.
RPS (Retail Payment System)
Germany's electronic low-value fund transfer system. See EMZ.
RTGSplus
Germany's national RTGS system. RTGSplus is linked to TARGET.
RTGS System
See real-time gross settlement system.
Same-day Funds
Money balances that the recipient has the right to transfer or take out of the account on the same day as the funds are received. The value date is equal to the date on which the funds transfer is initiated.
Sender Finality
An analytical term rather than operational or legal term, sender finality is defined by both the European Central Bank and the Bank of International Settlements as the point at which an unconditional obligation arises on the part of the initiating participant in a funds transfer system to make final payment to the receiving participant on the value date. See final settlement.
SEPA
See Single European Payment Area.
Settlement
Represents the point in the payment process that discharges the obligation relating to funds or securities transfers between two or more parties. See final settlement, gross settlement system, net settlement, net settlement system.
Settlement Agent
An institution that is responsible for managing all aspects of the settlement process (including the calculation of settlement positions and the monitoring of the exchange of payments) on behalf of transfer systems or other settlement arrangements. See final settlement, settlement, settlement institution(s), multilateral net settlement system.
Settlement Finality
See final settlement.
Settlement Institution(s)
Defined by both the European Central Bank and the Bank for International Settlements as the institution(s) across whose books transfers between participants take place in order to achieve settlement within a settlement system. See settlement agent, multilateral net settlement system, bilateral net settlement system.
Settlement Lag
The time-lag that occurs in an exchange-for-value process between the conclusion of the trade/bargain and its discharge by the final exchange of a financial asset for payment. See payment lag.
Settlement Netting
See payment netting.
Settlement Risk
Represents the risk that settlement in a transfer system will not occur as anticipated. This covers both credit and liquidity risk.
Settlement System
A system set up to facilitate the settlement of transfers of funds or financial instruments.
Signature Card
The paper form, or its electronic equivalent, held at the account holder's financial institution, that carries the signatures of authorised cheque and document signers.
Single European Payments Area (SEPA)
Attempts by the EU authorities and the European banking industry (via the European Payments Council) to create a fully integrated infrastructure for the payment, clearing and settlement of both high-value and low-value payments.
Single Legal Account Pooling
A cash management technique based around a single legal master account structure in the name of the parent or group financing company where the other participant accounts act as memo accounts of that legal account. This cash management technique is widely used in Northern Europe (Nordic and Baltic countries).
SIT (Système Interbancaire de Télécompensation)
France's low-value funds transfer system.
Smart Cards
Stored value cards, plastic cards with embedded integrated computer chips capable of storing data, including monetary value that can be electronically replenished.
Source Account
In a liquidity management arrangement, any account other than the master account. Also known as sub-account.
Standing Order
Essentially a retail banking term. An instruction from a customer to a bank to make a regular payment of a fixed amount to a named creditor.
STEP1
Run by the clearing arm of the Euro Banking Association, STEP1 is the retail clearing for EUR-denominated cross-border transactions within the EU.
STEP2
Run by the clearing arm of the Euro Banking Association, STEP2 is a bulk clearing for EUR-denominated cross-border transactions within the EU.
Stored Value Card
See electronic purse.
Sub-account
See source account.
Substitute Check
(USA) A new negotiable instrument created by the Clearing for the 21st Century Act (Check 21). A substitute check is an electronic version of a paper cheque, which is legally the equivalent of the original cheque and includes all the information contained on the original cheque.
Substitution
The subs n of one party for another in respect of an obligation. In a netting and settlement context, this generally equates to altering a contract between two parties so as to bring in a third party (sometimes the clearing house, e.g. in a option and future trade) which acts as counterparty to each of the two parties and ensures the original contract between the two parties is satisfied and discharged. See novation.titutio
Sweep Account
A bank account that automatically transfers excess balances into an overnight interest-earning investment with the same bank. See cash concentration.
Sweeping
See cash concentration.
TARGET (Trans-European Automated Real-time Gross Settlement Express Transfer)
The TARGET system is defined by the European Central Bank as a payment system composed of one real-time gross settlement (RTGS) system from each of the 15 countries of the European Union (EU) and the European Central Bank (ECB) payment mechanism. The domestic RTGS systems and the ECB payment mechanism are interconnected according to common procedures (interlinking) to allow cross-border transfers throughout the EU to move from one system to another. See interlinking.
Target Balance
Target Balancing
A cash concentration technique whereby all account balances are physically transferred into a nominated account leaving a predetermined amount in the sub-accounts. Also known as target concentration or sweeping.
TBF (Transferts Banque de France)
France's national RTGS system. TBF is linked to TARGET.
Teller's Cheque
(USA) Term for bank draft.
Threshold Balancing
A cash concentration technique where the balances of the sub-accounts are physically transferred in their totality into a nominated account each time the sub-accounts' balances reach a predetermined threshold. See cash concentration, sweeping, zero balancing.
Tiering
See interest rate tiering.
Tiering Arrangement
An arrangement operational in a number of funds or securities transfer systems where participants in a given category rely on the services of participants in another category to exchange and/or settle their transactions. See direct participant in an IFTS, indirect participant in an IFTS.
Time Deposit Accounts
A type of interest-bearing account in which the depositor cannot withdraw funds in advance of an agreed-upon time without incurring a penalty.
Transaction Balances
The depository balances an organisation holds for its collection and disbursement activities.
Transfer
Defined by the Bank for International Settlements as the sending (or movement) of funds or securities or of a right relating to funds or securities from one party to another by either the conveyance of physical instruments/money; accounting entries on the books of a financial intermediary; or accounting entries processed through a funds and/or securities transfer system. The act of transfer affects the legal rights of the transferor, transferee and possibly third parties in relation to the money balance, security or other financial instrument being transferred.
Transfer System
Defined by the European Central Bank and the Bank for International Settlements as a generic term covering funds transfer systems and exchange-for-value systems.
Transit Routing Number
The nine-digit number contained in the MICR line of a cheque or payable through draft that identifies the payor's/drawee's bank and thus allows the depository bank to route the cheque back to the payor's/drawee's bank.
Travel and Entertainment Card
A card issued by non-bank organisations to allow the holder (usually an employee) to pay for (work-related) travel and entertainment expenses. While the card offers the holder a credit line, it does provide extended credit - the total amount of the debt incurred having to be settled at the end of a specified period. The holder is usually charged an annual fee.
Treasurer's Cheque
See bank draft.
Truncation
A procedure in which the physical movement of paper-based payment instruments both intra- and interbank as well as between a bank and its customer, is minimised or eliminated by replacing the paper-based payment instruments, in whole or in part, by electronic records of their contents for further processing and transmission.
Ultimate Settlement
This term is sometimes used to denote final settlement in central bank money.
Unwinding (or Settlement Unwind)
A procedure followed in certain clearing and settlement systems in which transfers of securities or funds are settled on a net basis, at the end of the processing cycle, with all transfers provisional until all participants have discharged their settlement obligations. If a participant fails to settle, some or all of the provisional transfers involving that participant are deleted from the system and the settlement obligations from the remaining transfers are then recalculated. This transfers liquidity pressures and possible losses (deriving from the failure to settle) to other participants, and could, in extremis, generate significant and unpredictable systemic risks.
Value Date
The day on which a transaction is settled, the payor is debited and the payee credited. These days may differ if there is float.
Value Dating
A technique employed by non-US banks to obtain compensation for services provided to their customers.
Wholesale Funds Transfer System
See large-value funds transfer system.
Wholesale Lockboxes
Lockboxes characterised by a moderate number of large cash remittances, usually from corporate payors. Remittance information is manually processed.
Wire Transfer
Term widely used in North America. Synonym of same-day value electronic credit transfer.
Working Capital
The short-term assets a company has at its disposal to produce further assets. These include items such as cash, accounts receivable, inventory and marketable securities. The amount by which these exceed the company's short-term liabilities is the net working capital or net current capital.
ZBA
See zero balancing.
Zero Balance Account (ZBA)
A bank account that is automatically brought to a zero balance each day. Debits are covered by a transfer of funds from a master account at the same bank. Credit balances are automatically transferred to the master account. See sweeping, zero balancing.
Zero Balancing
A cash concentration technique where all account balances are physically transferred into a nominated master account. See cash concentration, sweeping, zero balance account (ZBA).
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