Account Receivable Conversion

ARC is the network in which electronic checks are processed.
This network includes the following entities:

• The Consumer
  
• The Merchant or Service Provider (Company A)
  
• ACH Processor (Access ACH)
  
• Originating Depository Financial Institution (ODFI)
  
• Federal Reserve (FED)
  
• Receiving Depository Financial Institution (RDFI)

Example of traditional check processing:
Company A has a large client base, which makes their monthly payments via paper check. The
standard process of posting and depositing these checks is to hand key the batch into the system.
This method may require many employees to process the entries in before the day is over. When
these batches are finished, they are entered into Company A's receivables and the paper checks
are submitted to its bank as a deposit. This can be done by a courier each day, or multiple times per
day. The bank will then verify that the paper check is in the correct amount, and then encode the
paper check with the amount. The bank may image archive the checks or microfilm them for
retrieval. Fees are incurred for the deposit, encoding, and the verification of amounts for those
batches.

Significant fees are also incurred if any of these checks are returned non-sufficient funds (NSF). NSF
checks which usually are returned in the process 3 - 4 days later. Company A must collect the funds
on a NSF check by contacting the consumer. An employee would have to obtain a fax copy of the
paper check from the bank and look up the consumer in Company A's accounting system in order to
pursue collection.

How check truncation will increase efficiency for Company A: Company A becomes self sufficient in
the process of receivables. First Company A will process the paper checks through an image
scanner, using CheckData Remittance Software form Electronic Payment Providers, Inc. This image
scanner with CheckData S/W will use Optical Character Recognition (OCR) to read numbers, letters,
or both from a remittance bill scan line or barcode. The image scanner will use a Magnetic Reader to
read the Magnetic Ink Character Recognition (MICR) line of the paper check and image both
documents front and back. These documents are processed with logic using Courtesy Amount
Recognition (CAR), Legal Amount Recognition (LAR) to match amounts and other information it
receives from both documents. The accuracy of this process is 80%, which means that 80% of all
documents processed through this system are finished after the initial scan. If any documents are in
question, then an employee of Company A will correct and verify the documents in question, then
payments are posted to receivables. Company A will use fewer employees to process remittance
bills and paper checks due to the scanner's speed and capabilities.

The transactions which Company A is accepting for processing through the ACH System are as
follows:

Checks paid by mail: Involves backroom processing - envelopes are opened with an envelope
opener, extractor; or documents are removed from envelope, batched, and scanned and posted to
receivables

Checks paid at the place of business: Point of Sale (POS) transactions - Consumer pays by
check at Company A's place of business. The check is returned to consumer after it has been
scanned and processed through a POS terminal.

Checks paid online: Consumer has the ability to pay by check online by entering their checking
account information. Consumer can set this to be either a one- time or a recurring transaction.

After any corrections are made, reports are printed and Company A will post this data to its
accounts receivable system. Company A has the ability to access any document(s) and view the
image and data associated with the document(s). At this point, Company A is ready to send its
truncated checks electronically through the ACH system. The software will produce an ACH file and
Access ACH will process that file. All information regarding the transactions in this file, such, as
name, amount, and image will be available online via a secure web interface. The funds from these
transactions may be available immediately depending on Company A's credit worthiness. The FED
takes debits from the consumers' accounts the same day the transactions become effective in the
ACH system. Company A would receive notification electronically on any NSF transactions with 24 Ö
48 hours. These returns can be imported back into Company A's accounting system and the credit
posted to the consumer's account would be reversed. Company A also has the ability to reprocess
the returns two more times via the ACH system, and can add a fee to the represented transaction.
Company A's bank is not involved in any of this process except for the deposits received for
transactions processed through the ACH system.

EPP supplies the hardware, software, and ACH services to Company A for the check truncation
process.

With ARC, customers still write checks to pay bills. Under ACH rules, the customer and banks must
have access images of those paper checks, front and back, for up to two years. The bill sender
benefits from faster clearing times and less handling of the paper as well as:

• Reduced banking fees
• Improved funds availability
• Priority presentment on returned deposited items
• Three (3) presentments on returned deposited items
• Real time control and reporting of all deposited dollars
• Reduced paper handling and storage requirements
• Online research of all checks/payments Ö images (front & back)
• Reduced data entry of accounts receivables posting
• Improved security and audit trails
• Front and rear image capture

EPP supplies a variety of transports or scanners, which fulfill check-imaging requirements for ARC
conversion. Some current features are:

• Front and rear image capture
• Sorting and pocketing of convertible and non-convertible items
• Motorized pockets to enhance jam-free sorting
• Model options and upgrades ensure a match with volume requirements
• Compact tabletop design

Find out how the EPP ARC conversion solution can serve your business goals and your corporate
customers.

• EPP provides payment service solutions and support for:
  
• Electronic check and hybrid payments
• Remittance Processing Hardware & Software
• ARC Conversion
• Image archive software
• Recurring billing
• Auto pay Via Internet with Accounts Receivable Posting

Key Features Description
Intelligent processing - Image based processing with highly accurate Courtesy and Legal Amount
recognition (CAR/LAR)

Check Data is designed with imaging and CAR/LAR technologies embedded into its core and not as
an afterthought. The flow of the system is entirely built around optimal usage of the imaging
technology.

Under our "Intelligent Processing" mode (i.e., 2-pass process), the operator simply puts the
payment batches into the scanner (i.e., the 1st pass) and lets the system perform the following
tasks by itself:

• "Virtual" sorting
  
• OCR scan line(s) reading
  
• Bar code reading
  
• MICR reading
  
• Capturing of the images of the front and back of documents
  
• Perform recognition of the dollar amounts on the checks
  
• Reads the hand filled in amount on the stubs or deposit slips
  
• Calculate multiple check and/or multiple stub values
  
• Balancing and cross validation of total payment values
  
• Put the of out-of-balance payments on "electronic" suspense

Check Data is designed to offer centralized or distributed processing. Under the distributed
processing configuration, the operator can be scanning in new payment batches while Check Data is
performing all of the tasks listed above in a parallel and unattended mode on a different
workstation. In addition to that, for the out-of-balance items, another operator can be verifying the
payments on another station utilizing the images of the documents as the source (note: this
verification function does not have to be carried out in the same building). This distributed
processing ability enables the scanner to be running at its maximum speed without data entry
interruptions.

The highly accurate recognition of dollar information combined with cross-validation of value against
the due amount(s) on the stub, enables a very high percentage of payments to be "auto-balanced".
For the items that are not balanced by the system, the payment records and images are put on
"electronic suspense" for operator verification. As mentioned, the verification function can be
performed away from the scanner/encoder. In the meantime, the checks on the scanners can be
put aside without regards to the order that they are in because the system has already uniquely
identified and catalogued each one of them electronically.

After the extremely-easy-to-use and image-based verification step, the out-of-balance items are
balanced. If desired, at any moment throughout the day, the scanning operator can begin the MICR
encoding step (i.e., the 2nd Pass).

It is important to mention at this point that the payments can be processed as an ARC payment for
processing as ACH through EPP ACH Software provided.

If encoding is necessary the operator simply has to put the checks into the scanner again without
regards to the order of the checks. Then the operator simply selects the "intelligent encoding"
function, the system will automatically:

• MICR Encode
  
• Rear Endorse
  
• Rear Stamp
  
• Capture images of the processed front and back of the checks

After the ACH and/or 2nd Pass encoding step, the processing function is complete and:

• The data is ready for management system upload
  
• The checks are ready for deposit
  
• The images of the payments are ready for long-term imaging archival and retrieval.
  
• Allow for 2-pass and 1-pass processing.

Check Data is designed to offer "Intelligent Processing" with a 2-pass operation; it also offers the 1
pass operation in 2 options. The first 1-pass option is the "Sort Encoding" process. Sort encoding
requires the mailroom to sort out incoming remittance so that the Equal-Pay items are isolated. The
Equal-Pay items are items with single remittance stub, single check with full due amount. The Equal
Pay items can be processed using the 1-Pass Sort Encoding Operation. Due Amounts is read from
the scan line of the remittance stubs the accompanying check is MICR encoded, endorsed, stamped,
and imaged; the system does not perform any CAR/LAR, Stub Zone ICR, or Cross validations.
Hence, this option is called Sort Encoding. If the equal pay is 70% to 80 % the time it takes to sort
can be very beneficial and it makes sense to sort. Then the intelligent processing can be use on the
other 30% to 20% of items, which usually give you 80% of the problems.

Check Data also offers the 1-pass manual encoding operation, which requires an operator to
perform data entry.

• No need for extensive mailroom sorting

Using the 2-pass Intelligent Processing Method offered by Check Data, the incoming mail does not}

require any pre-sorting, except for incoming payments without remittance stubs. There are mail
extraction machines that can sort out payments containing only one item in the envelope.

The document types considered are:

• Single-Single (one stub, or deposit slip paid by one check)
  
• Single-Multiple (one stub, and multiple checks)
  
• Multiple-Single (multiple stubs, and one check)
  
• Multiple-Multiple (multiple stubs, and multiple checks)

Incoming mails with these document types do not have to be sorted, or pre-calculated by the
mailroom operator. All these payments can be stacked together into a mixed batch to be processed
by Check Data. Check Data, in its 1st pass will automatically identify and differentiate the different
payment groups. In the rare event that the payment groups are identified incorrectly, the total
check amount from the payment group will be out of balance compared to the total stub due amount
causing the group to be put into electronic suspense. The re-sorting of the payment groups is done
by the operator, electronically, using the images. The paper checks and stubs do not have to be
pulled out of the batches for reprocessing.

The operator can opt to presort the payments received by document types. If the batches are
processed based on their document types, there is less chance for the system to mis-sort the
payment groups, hence less operator intervention.

Database lookup and validations
Check Data offers two means to perform a database lookup, or data validation links to the client's
existing management system. One method carries out the database lookup to validate incoming
payments by embedding the lookup link into the CAR/LAR and Cross Validation Processor function.
In this operation, the payments can be scanned in the 1st pass at full speed because the scanner is
not slowed down by the lookup and validation function. If payments are rejected after the lookup,
when these checks are fed into the scanner for 2nd-Pass encoding, these checks will not be
processed and are sent to the Rejection Pocket. Please note that their corresponding stubs are not
sorted out from the rest of the stubs. For payments processed using the blind or manual encoding
process, these payments will not benefit from this method of lookup.

The second method will carry out the database lookup and validation during the scanning process.
As the payments go through the scanner, the lookup is carried out. This method will slow down the
scanners but the actual speed degradation can only be determined on a case-by-case basis.

Flexible output data file for accounting system upload
Check Data offers two basic ASCII (flat file) output file formats: 1) Fixed Length and 2) Comma Delimited. The exact structure of the output file is user configurable. The administrator selects from
the list of the available data fields to construct the desired output file structure. In addition to the
field and field order selection, the administrator can construct basic calculated fields (e.g., running
totals) and utilize a limited set of system values (e.g., Processed Date, Sequential Counters).

The basic configuration allows for one output file format to be constructed, unlimited additional
output file formats are available and considered as additions to the base system.

Long term imaging archival and retrieval
Check Data's core design is image-based. Logically, the client is encouraged to take the extra
advantage of electronically storing images of the payments already captured for easy tracing and
retrieval. Instead of hours of searching and days of waiting, the client can find what they are looking
for in minutes.

Check Data offers its own, inexpensive, imaging archival system for the limited use of storing output
images from Check Data. Check Data also offers interface and integration links to most industry
standard Document Imaging and Management systems. Please consult your Check Data Solution
Provider about available links to other imaging systems.

Check Data also offers customized imaging integration and image enabling features to link the
imaging system to your existing records management system, even if the system's interface is
"terminal based" using emulation access. Please consult your Check Data Solution Provider about
links to your existing imaging system.