This post is in continuation of my earlier posts under Product Management Toolkit Series for Product Managers. Here, an overview is provided of Post – Dated Cheque (PDC) Management, which is a slightly niche area of Receivables Management under Cash Management Services.
Background: Besides structuring Solutions for Cash/ Cheque/ Electronic Collections under Receivables Management, a Product Manager handling Cash Management Services is also likely to come across Client needs for a comprehensive Solution towards Post Dated Cheque (PDC) Management. The broad construct of the requirement shall be as follows:
· Custody, vaulting and management of the entire PDC Lifecycle
· Timely retrieval of PDCs and presentation (through own branches/ correspondent banks/ drawee banks) and
· Customised MIS Reports as per Client requirements and nature of business.
The need: The Business requirement of PDC Management stems from the fact that Clients face challenges in managing a high volume of PDCs Inhouse – in terms of manpower requirements, logistics, need to remember various presentation dates, manage exceptions (such as Cheque swap, Stop Payment requests from their customers, etc.), besides requiring customised MIS Reports for reconciliation. This is addressed by a bespoke PDC Management Solution from a Bank offering Cash Management Services.
Some typical use cases: Among others, PDC Management Solution is required by the following businesses:
· Non-Banking Finance Companies (NBFCs) who collect loan instalments from their customers through PDCs
· Educational Institutions who collect PDCs from parents of their students in advance
· Leading builders who collect rental payments via PDCs from their tenants.
Challenges in structuring a PDC Management Solution: The PDC Management Solution is relatively more challenging than some other Receivables Solutions on account of:
· Need for a Specialised Vendor/ Service Provider having expertise in PDC Management (most banks outsource the entire PDC Management process to a trusted 3rd party, while continuing to front end customer interactions)
· Its categorisation as a ‘High Risk’ business in several banks on account of the risks associated with execution of the mandate (I recollect having filled a 45 page ‘Risk Assessment Document’ before we could proceed with the first PDC Management mandate in an MNC Bank I had the privilege to work for)
· Highly operational – intensive nature of the Solution with special situations such as Stop Payments (when Client’s customer doesn’t want a cheque to be presented for any reason), Swapping of Cheques (when Client’s customer changes bank accounts), Bounced cheque handling (where Client requests for a bounced cheque to be re-presented later, etc.).
Requirements for PDC Management Solution:
- Trusted Vendor/ Service Provider who could manage the entire PDC Lifecyle end – to – end and address all Client queries/ concerns promptly (this is under the assumption that this activity is being outsourced)
- Internal approvals (first time) including empanelment of new Vendor/ Service Provider if needed – as mentioned earlier, the approval and empanelment process for this Solution could take considerable amount of time
- Complete understanding of the enrichments/ MIS requirements of Clients – an NBFC could need its customer’s name and Loan account number; an Educational Institution could need its Student’s Name, Roll No and Class while a Builder could need the tenant’s name, Flat number and Building Name, etc.
- Option to use for sharing MIS Reports – while the major Cash Management Collections softwares generally have a PDC Management module for addressing such requirements, at times the MIS Reports provided by the Vendor/ Service Provider are also ‘fit for purpose’. A decision on which option to choose from would need to be taken depending on the situation.
In addition to these, in some cases (I have been involved in such instances), Clients have also sought a Service Level Agreement (SLA) covering the bank’s responsibilities, Turn Around Times (TATs), Escalation Points, among others. This would need (among others) a discussion with Client’s Legal team as well as the Bank’s Legal team.
Benefits to the Bank: Through the PDC Management Solution, the bank seeks to gain Fee Income (mark – up over the costs of Vendor/ Service Provider) as well as NII on Client balances. Moreover, the bank gets an opportunity to present itself as a one – stop shop for all Banking requirements of the Client.
Benefits to the Client: Clients benefit from a hassle – free management of the entire PDC lifecycle in a professional manner and reduction in their manpower costs (had they managed this Inhouse). Also, their reconciliation process is smooth on account of the detailed MIS Reports provided by the bank offering this Solution.
Way forward: In case of countries such as India, the PDC Management model for NBFCs is gradually giving way to an Electronic Collections model where Clients are keen to collect funds from their customers electronically (the NACH Debit and electronic verification of these mandates are a case in point). However, the PDC Management business is still existing and is an important tool towards attracting as well as retaining Corporates/ Financial Institutions requiring this Solution.
Would welcome your views/ thoughts on PDC Management. What are some of the challenges you have faced in execution of these mandates? How can banks address Client needs better?
Do keep reading this space for more on Product Management….
Note: The post draws significant inputs from the Indian context. In case of other geographies, the context and challenges might differ.
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