A collection item (also called a noncash item) is an item presented to a
bank
A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
for
deposit that the bank will not, under its procedures, provisionally credit to the depositor's account or which the bank cannot (due to provisions or law or regulation) provisionally credit to a depositor's account.
[American Bankers Association, p. 77.] Collection items do not create
float.
Payment must be received from the payor bank before the item may be credited to the depositor's account.
[Fitch, p. 95.]
A collection item may be contrasted with a "demand item" or ''cash item,'' under which the bank credits the depositor's account immediately.
Cheque
A cheque (or check in American English) is a document that orders a bank, building society, or credit union, to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing ...
s are usually handled by banks as a cash item, on the assumption that the payor bank will honor the check. Cheques create float (cash in the payor's account which the payor still has access to while the transition has yet to be finalized).
Other types of collection items include:
*
Dishonoured cheques or "bad cheques"
[Coe, p. 196.]
*
Bank drafts
*
Negotiable instrument
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...
s
A noncash item is a special kind of collection item. Noncash items include checks which carry special instructions, checks drawing on funds in foreign banks, and
bankers' acceptances.
[Fitch, p. 321.]
In the United States, fees are generally imposed on collection items due to the special handling which they require.
See also
*
Warrant of payment
In financial transactions, a warrant is a written order by one person that instructs or authorises another person to pay a specified recipient a specific amount of money or supply goods at a specific date. A warrant may or may not be negotiable ...
References
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Bibliography
*American Bankers Association. ''Banking & Finance Terminology.'' Washington, D.C.: American Bankers Association, 1999.
*Coe, Charle K. ''Nonprofit Financial Management: A Practical Guide.'' Hoboken, N.J.: Wiley, 2011.
*Fitch, Thomas P. ''Dictionary of Banking Terms.'' Hauppauge, N.Y.: Barron's, 2006.
*Speidel, Richard E. and Rusch, Linda J. ''Commercial Transactions: Sales, Leases, and Licenses.'' St. Paul, Minn.: West Group, 2001.
Banking terms