9.15 Cash Receipt and Disbursement Management

Sources of delays in processing checks:

• Mail Float – it simply takes some time for a check to move from payer to recipient
• Deposit Collection Float – it also takes time for a check to clear

Accelerating Cash In-flows

• Lockboxes – the recipient places a collection point in the vicinity of the debtors, thus cutting down on mailing time. Payments are then sent to this point from which the bank makes authorized collections and deposits, often several times daily. Deposit statements are transmitted to the recipient daily.
• Pre-authorized debits (PADs) – the payer provides authorization for his bank account to be debited periodically
• Wire Transfers – this can be done by telephone or by computer. The payer provides his bank’s routing number (“ABA”) and personal account numbers.
• Return Envelopes – this may contain a bar code, or the like, and a post office box number.
• Depository Transfer Checks (DTCs) – this is an authorization to transfer funds between accounts at the same bank.
• COD – demand “cash on delivery.”

Delaying Cash Out-flows

• Delay in mail – open a bank account in a remote bank
• Centralize Payables – make one internal party responsible for payments, which would be done at the optimal time.
• Drafts – payment is made only when a draft is presented for payment, which must be examined and accepted
• Check clearing – use your experience to figure out how long it usually takes for deposited checks to clear.
• Delay Employee Payments – pay less frequently.
• In general, do not pay before the money is due.