The memorandum of purchase and the debit and credit tickets are then attached to the letter and passed to the clerk who prepares the cashier's check. The check is signed and the charge ticket approved by a bank officer. The check and original purchase memorandum are sent to the customer, and the tickets to the general bookkeeper's department.
Settlements and Adjustments The settlement and adjustment of items necessarily give rise to diverse operations, but the procedure may be described by presenting a typical case. Suppose a manufacturer at Troy sells a bill of goods to a concern at Rio Janeiro for $945.32, draws a bill for that amount and sells it to his Troy bank. The Troy bank resells it to its New York correspondent, say, on November 1. The bill is drawn at 90 days' sight. The New York bank counts on 6o days to send the item to the drawee and for payment to be received. The bank, therefore, discounts it for 90 days plus 6o days, the time it will be without funds. The bill will probably fall due about March 1. If the bank underestimates the period, it may ask the Troy bank for a check to cover the additional interest. Having bought the bill, the New York bank sends it to its Rio correspondent for acceptance and collection when due.
Now suppose the drawee disputes the bill, refuses to accept it, and insists that deductions amounting, say, to 20 per cent be made. The Rio bank reports the reasons for non-acceptance; the drawer offers to compromise by allowing, say, io per cent deduction. The Troy bank on, say, December 17, transmits these instructions through the New York bank to the Rio bank, and the New York bank through the Troy bank then instructs the drawer that it has followed his instructions. The cable to the Rio bank is now confirmed by letter and the case is more fully explained. A bill is prepared and sent to the drawer for the cable charges to Rio. Debit and credit tickets are also put through.
The New York bank may not hear from the item again until, say, May is, when an advice of payment dated March ro is re ceived from Rio. The item has apparently been collected on March io; but May is is the date upon which presumably the proceeds arrive at the New York bank and is taken as the value date when a debit ticket is put through charging the Dollar ac count of the Rio correspondent for the proceeds. Upon examin ing the advice of payment, it is noted that the Rio correspondent bank has deducted io per cent from the face of the draft " as per cable of December 17." The foreign bank also has deducted its
charges of 1/8 per cent of the face amount, and a further charge of so cents to cover bill stamp, postage, etc.: This amount is the net proceeds which the Rio correspondent advises the New York bank to debit to its account.
The cage bookkeeper in charge of the ledger wherein remit tances to Rio are posted prepares the tickets to close out the entire transaction. He enters on the tickets the arrival date of the advice of payment, and the tickets are sent to the general bookkeeper's department.
If the mails are heavy and the bookkeeper very busy, he sends a notice to the drawer that his draft has been duly paid " subject to final adjustment where the same is required." The purpose of this notice is to inform the drawer at the earliest possible mo ment whether or not his drafts are being duly honored, so that if he has a second shipment ready for this Rio customer he may despatch it at once. If his drafts are not honored promptly and without dispute and deductions, he may want to cut off this customer. But the notice also gives the bookkeeper time to de termine whether the bank has been out of funds longer than was calculated and whether further interest should be asked. When all such not:ces have been despatched and the bookkeeper finds time, he carefully examines the advice of payment to determine whether the Rio bank's charges are according to the rates agreed upon by the banks and whether there is any cause for claiming additional interest or charges or perhaps allowing him a rebate for some reason or other.
A subdivision of Bills Discounted Foreign is that of the items "subject to adjustment." This term includes all bills the time of which in transit during the collection process or for the collec tion of which the foreign correspondent's charges are uncertain. The whole or a percentage of the face amount of such items is advanced with the understanding that the determination of the exact amount of interest and charges is reserved until the advice of payment has been actually received but that these charges are to be borne by the drawer. In adjusting such an item the charges are based on the regular commission charge On the face amount of the draft, interest at the prevailing rate upon the amount actually advanced, and the exact charges and commis sions of the foreign correspondents. The difference between the combined exchange and interest charges and the fu.nds originally retained is credited to the drawer.