Exception Item

Exception item is a term used in banking used for describing unprocessable check. Situations in which this problem appears are, for example, when account of the customer has been just closed before the payment went through, also when there is some kind of mistake on the check like missing a signature or incompleting some other steps needed to successfully finalize the check which often happens when check isn't entirely filled out. An exception item which includes stop payment can also simply happen for a request of the account holder to cancel payment or a check that he already released but that has not been processed yet (Schroff, 2007).

Exception item in the case of stop payments

There are a few important informations that need to be known and delivered to the bank, to stop the payment, and some of these are: to when the check is payable to, the date, and of course the check number. With this information we can ask for pausing or canceling the check and if they are all correct banks flags the check and does its job that is preventing the check from clearing it out (De Jonghe, 2010).

There are some banks that are kind enough to offer their account holders possibility to refresh or to extend the stopped payment, and to have this done all the customer needs to do is to make written or verbal request. It is very useful for banks too especially when they cannot find this particular check. Bank has a deadline to locate the check and this period goes up to six months, but after that time pass the stop payment will naturally expire. Cost holders can issue the stop payments and it costs them some small amount of money which is about $30, but every bank can have its own fee (Pozsar et al., 2010).

Reasons why account holder can stop the payment:

• Incorrect amount of money in the check that has been sent
• Situations where the check already had been put in the mail they can simply cancel the purchase.
• Many other reasons, and most of them are successfully accepted, and it is mostly uncommon that these requests are denied (White, 2014).

Technology and an exception item

Banks personnel now have all the technological support in resolving exception items in more efficient manners.

By automating the process of handling an exception item some companies save a lot of time:

One of the methods is to streamline the whole process with the use of software connected to cloud. It allows the bank to finalize the accounting process in a centralized and secure manner. The other method that banks take advantage of is to use the routing or transit number of exception items. The bank uses the essential information connected to transit number to advance the accounting process (George & Kumar, 2013).

Examples of Exception Item

• Unprocessable Checks: This happens when a check is processed incorrectly due to missing information or an incorrect signature. For example, if a customer fills out a check with the wrong amount or leaves their signature off, then the bank would not be able to process the payment and the check would be considered an exception item.
• Stop Payment Requests: A stop payment request is when an account holder requests that a payment be cancelled or stopped. This could be due to a change of plans or a misunderstanding of the payment they are making.
• Closed Accounts: When an account is closed before a payment is made, the check is considered an exception item. This could be for various reasons, such as unpaid fees or the account holder no longer needing the account.
• Incorrect Addresses: If the address listed on the check is incorrect or outdated, the bank may not be able to process the payment correctly and the check would be considered an exception item.
• Incorrectly Signed Checks: Checks that are not signed correctly or are missing a signature altogether can be considered an exception item. This could be due to a customer forgetting to sign the check or signing the incorrect name on the check.
• Incorrect Account Numbers: When the account number listed on the check is incorrect, the bank may not be able to process the payment correctly and the check would be considered an exception item. This could be due to a customer entering the wrong account number or forgetting to include the account number altogether.

Advantages of Exception Item

One of the advantages of using exception items in banking is that it helps to streamline the payment process. *It allows banks to quickly identify and correct any issues that may arise with a check. *It can also help to reduce the likelihood of fraud by ensuring that all checks are properly authorized before being processed. *It also provides the bank with an audit trail which can help to track and resolve any issues that may arise with a check. *Additionally, exception items help to reduce the risk of overdraft fees by allowing banks to quickly identify and process checks that do not meet the required criteria. *Finally, it helps to improve customer experience by allowing customers to quickly and easily resolve any issues with their payments.

Limitations of Exception Item

One of the main limitations of exception item is that they can cause significant delays in payments. This can be due to a number of reasons, such as the need to investigate the reason for the item, contact the customer to obtain more information, and if needed, take legal action. Additionally, the costs of investigating and resolving exception items can be relatively high, especially if the customer is located abroad. Furthermore, if the item is not resolved, the funds may remain in limbo for an indefinite period of time. Other limitations include:

• The need for manual intervention: Often, exception items require the manual intervention of a staff member in order to investigate and resolve the issue. This can be time consuming and costly.
• Regulatory implications: Exception items can have regulatory implications, as they may involve fraud or other criminal activity. This can lead to delays in resolution, as well as fines or other penalties.
• Customer dissatisfaction: Having to wait for the resolution of an exception item can cause customer dissatisfaction, which can have a negative impact on the company's reputation.

Other approaches related to Exception Item

The following are other approaches related to Exception Item:

• Automated Clearing House (ACH) - ACH is an electronic network for financial transactions, which allows for the transfer of money from one bank account to another. It is a great alternative to paper checks and can be used to process payments more efficiently.
• Lockbox services - Lockbox services involve the use of a bank-controlled mailbox to receive payments. This allows the bank to process payments quickly and securely, without having to wait for the customer to send in the payment.
• Electronic Funds Transfer (EFT) - EFT is an electronic payment system designed to transfer funds quickly and securely. It allows for faster processing of payments and eliminates the risk of lost or stolen checks.
• Payment cards - Payment cards are a form of electronic payment that allow customers to pay for goods and services with their card. This is becoming increasingly popular, as it is convenient and secure.

In summary, there are a variety of approaches to managing Exception Items, including Automated Clearing House, Lockbox services, Electronic Funds Transfer and Payment cards. Each of these approaches has its own pros and cons and should be carefully considered when deciding the best approach for a business.

Exception Item — recommended articles

Signature card — Positive pay — Acquiring bank — Negative confirmation — Void Transaction — Cash Transaction — Books of original entry — Documents against acceptance — Back Charge

References

• Arif, A., & Nauman Anees, A. (2012). Liquidity risk and performance of banking system, Journal of Financial Regulation and Compliance, 20(2), 182-195.
• De Jonghe, O. (2010). Back to the basics in banking? A micro-analysis of banking system stability, Journal of financial intermediation, 19(3), 387-417.
• George, A., & Kumar, G. G. (2013). Antecedents of customer satisfaction in internet banking: Technology acceptance model (TAM) redefined, Global Business Review, 14(4), 627-638.
• Gorton, G., Metrick, A., Shleifer, A., & Tarullo, D. K. (2010). Regulating the shadow banking system - with comments and discussion, Brookings papers on economic activity, 261-312.
• Pozsar, Z., Adrian, T., Ashcraft, A., & Boesky, H. (2010). Shadow banking, New York, 458(458), 3-9.
• Russell, N., van der Aalst, W. M., & Ter Hofstede, A. H. (2006). Exception handling patterns in process-aware information systems, BPM Center Report BPM-06-04, BPMcenter. org, 208.
• Shroff, F. T. (2007). Modern banking technology, Northern Book Centre.
• White, E. N. (2014). The regulation and reform of the American banking system, Princeton University Press, 1900-1929 (Vol. 525).

Author: Mateusz Wójcik