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Cash Management Best Practices
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been surpassed. However, these activities can destroy a company’s reputation
with its suppliers and even impact its credit rating.
A legitimate way to retain cash for an extra day or two is to use controlled
disbursements. This best practice is based on the principle of mail float, which
means that one can print and immediately mail a check to pay for an invoice on
its due date, and the supplier can receive and cash it, but the check will not clear
for a day or two longer than was previously the case, resulting in extra time dur-
ing which a company still has control over its funds. For example, a company in
Denver can issue checks that are made payable to a bank in Aspen, Colorado,
which, due to its isolated location, requires an extra day for checks to clear. When
checks are presented to the Aspen location for payment, a daily batch of cash
required to cover the payments is forwarded to the company’s primary bank. The
company can access this cash requirement information every day and forward
just enough money to the controlled disbursement account to cover cash require-
ments for that day. These extra steps give a company the capability to keep virtu-
ally all of its excess cash in investments, extracting only the bare minimum each
day to cover immediate cash requirements. Thus, controlled disbursements not
only allow a company to retain its cash longer, but also to use the new off-site
bank account as a zero-balance account. Both of these actions can significantly
increase the amount of a company’s operating funds on hand.
Though a sound best practice to use, there are a few issues involved with a
controlled-disbursements account to consider. One is that the amount of addi-
tional float made available through this method is gradually shrinking, as the Fed-
eral Reserve Bank gradually eliminates those pockets of inefficient-check clear-
ing throughout the country. This may require a company to periodically change
the location of the bank that it uses as its check-clearing point. Eventually, the
longest additional float time to be gained by this method will probably be limited
to a single day. Also, the concept is one of the most expensive bank services.
Consequently, the cost must be carefully calculated and offset against projected
benefits to ensure that it is a worthwhile implementation project.
Given the cost of controlled disbursements, this is a best practice that is best
used by a company with a significant volume of cash flow, which ensures that the
incremental benefits of retaining a large amount of cash for an extra day or two
will adequately offset the cost of this service.
Cost: Installation time:

6–7 IMPLEMENT POSITIVE PAY AND REVERSE POSITIVE
PAY SYSTEM

Some organizations have a problem with check fraud, whereby checks are pre-
sented to the bank for payment that either were not issued by the company or
were issued for a lesser amount than is noted on the presented checks. Though