Financial Literacy (or FinLit, for short)

At Service Credit Union, part of our mission is to provide the resources needed to improve our members’ financial well-being. One of those resources is financial literacy, which allows people to make informed decisions about their finances. An element of that literacy is knowing what financial terms mean. Here, we define terms that businesses, both startup and existing, are likely to encounter when they deal with our Business Cash Management services.

FinLit Terms You Should Know

ACH payment: The Automated Clearing House (ACH) is an electronic fund-transfer system that facilitates payment in the U.S. The ACH payment system provides ACH transactions for use with payroll, direct deposit, tax refunds, consumer bills, tax payments and more. Recent rule changes are enabling most credit and debit transactions made through the ACH to clear on the same business day.

Cash management: Cash management is the process of collecting and managing cash flows. It is a key component of a company’s financial stability. Businesses have a wide range of offerings to help with cash management needs. Banks are typically a primary financial service provider for the custody of cash assets. There are many different cash management solutions for businesses seeking to obtain the best return on cash assets or the most efficient use of cash comprehensively.

EIN: The employer identification number (EIN) refers to a unique identifier that is assigned to a business entity, so that it can be easily identified by the Internal Revenue Service. EINs are commonly used by employers for reporting taxes. Businesses can apply for EINs directly through the IRS, which usually issues them immediately.

Lockbox banking: Lockbox banking is a service provided by banks for the receipt of payment from customers. Payments made by customers are directed to a special post office box instead of going to the company. The bank goes to the box, retrieves the payments, processes them and deposits the funds directly into the company’s bank account. Lockbox service streamline collections and payment processing.

Remote deposit capture: Remote deposit capture is a technology that allows banks to accept checks for deposit using electronic images instead of the original paper version. The process eliminates trips to the banks, and checks can be deposited 24/7, not just during banking hours.

Sweep account: A sweep account automatically transfers cash funds into a safe but high interest-earning investment option at the close of each business day, e.g., into a money market fund. Sweep accounts try to minimize cash drag by capitalizing on the immediate availability of higher-interest accounts.

Wire transfer: A wire transfer facilitates money transfers electronically across a network of banks or transfer agencies around the world. Wire transfers involve a sending-and-receiving institution, and require information from the party initiating the transfer, such as the receiver’s name and account number. These transfers don’t actually involve the physical exchange of cash but are settled electronically.

— SOURCE: INVESTOPEDIA