Collaterals At Maturity

When the collaterals become due, the teller takes them over with the other bills, and follows the same process in collecting or effecting payment. The payment of a collateral, when received, is really a payment on account of the indebtedness to the bank of the customer who lodged it. It might, therefore, be applied with propriety on any of that customer's notes, against which the collateral was pledged, that happened to be due, and if none were due, then on the next one to become due. This could be done with collaterals pledged generally against a line of discounts. The proceeds of any that were pledged specifically against a particular discounted bill would have to be applied to that bill, and none other.

Cash Collateral Account

But to apply the proceeds direct to the loans or bills secured by the collateral is not convenient for several reasons. The clearer record is kept and entries are economized by crediting each payment on collateral notes to what is called the "cash collateral account" of the customer who lodged it. So, on receiving payment, the teller makes out a slip crediting the amount, less the commission charged by the bank, to that account. Enough particulars are put on the slip to identify the bill.

The cash collateral accounts are kept in the general ledger, an account being opened for each customer having collateral notes paid. It will not be out of place here to emphasize the distinction between the two kinds of accounts.

An Illustration

The collateral ledger, let us say, shows a balance of $8,426.73 at credit of the "collateral account Jno. Jones." That means the bank holds collateral notes on account of Jno. Jones' indebtedness to it amounting to $8,426.73.

The ledger will state whether these notes are held generally against the indebtedness or specifically against particular loans. Then the general ledger shows that there is at the credit of "Cash collateral account Jno. Jones" $340.11. This latter sum represents actual cash held by the bank (received as payment for collateral notes) for applying on such of Jno. Jones' notes as the collaterals were pledged against. The security held, in Jno. Jones' case, would be, therefore: In notes, $8,426.73; in cash, $340.11.

From the cash collateral accounts the funds are transferred to the particular notes to which they pertain, or to the collateral customers' loans as they fall due, or as the manager may direct.

Why Protest Is Not Necessary

At the end of the day, if collateral notes remain unpaid, there is no object in protesting them, except in those cases where there is an endorser other than the customer on whose account they are held. The bank holds the customer liable on the discounted note or notes against which the collaterals are lodged, so there is nothing gained by protesting his name on his collaterals.

Withdrawals

It has been described how the various accounts in the collateral ledger are credited with deposits of notes. Sometimes it happens that the customer, for one reason or another, desires to withdraw certain notes lodged by him. On his securing the manager's consent the bills are given up to him. Receipt forms are provided for this purpose. The notes to be withdrawn are entered on the forms and totalled. The customer signs, as acknowledgment that he has received them, and the notes are surrendered to him. Each bill on the form is then marked off as returned, with the date, in the collateral ledger and in the diary. The total amount of the withdrawals is put in the debit column in the customer's account in the collateral ledger, and is deducted from his balance. The numbers of the surrendered bills are set down opposite the debit entry, particularizing the notes making up the total. It is necessary also to debit the customer's collateral account when any of his notes are paid and credited to his cash collateral account. In this case the notes are marked off paid in the ledger and diary.

There are two general accounts pertaining to the collateral notes in the general ledger. One is "Collateral notes on hand," showing a debit balance, and representing the total of the collateral notes held by the bank. The other is "Collateral accounts," showing a credit balance, and representing the total of the collateral accounts of the customers. "Collateral notes on hand" balance exactly with "Collateral accounts."