Page 133 - Accounting Best Practices

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Cash Management Best Practices
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6–11 SHIFT MONEY WITH ELECTRONIC FUNDS TRANSFER
The cash management staff is sometimes called upon to make money transfers
that are either very large or complex or are on a rush basis. A good example of
this situation is a letter of credit (LOC), commonly used for international transac-
tions. The paperwork needed to initiate an LOC is exceedingly lengthy and is
usually wrong on the first try, requiring some additional iterations before it is cor-
rect. Another example is a large payment that must go to a supplier at once, pos-
sibly to avert a loss of credit standing. This may require a hand-carried local
delivery or an overnight express delivery to the supplier. In any of these cases, the
cash management staff will take an inordinate proportion of its time to process
the movement of funds. There must be an easier way.
There is, and it is the wire transfer. This transaction is handled through a
company’s bank, which can shift money out of the company’s bank account in
minutes and route it to the supplier’s account, even if it is located at another bank.
There is little paperwork and no hand-carrying of checks. To function properly, a
company needs the recipient’s bank account number and bank routing number.
The person sending the funds (who must be authorized to do so, with this autho-
rization on file at the bank) then faxes the transfer information to the bank and
waits for the transfer to take place. To make the process even more efficient, one
can have fax forms already prepared for the most common wire transfer destina-
tions, with all of the bank account information already filled in. A more advanced
setup used by larger companies is to have all the wire transfer information stored
in the computer system, so that wire transfer information can be sent electroni-
cally to the bank. Yet another version is to send wire transfers by accessing the
bank’s database on-line and performing all the work oneself. With all of these
options for sending money to suppliers, there is bound to be an approach that
meets the particular needs and resources of any company.
Despite the obvious nature of this best practice, it is surprising how rarely it
is used. By maintaining a database of recipient bank information, however, this
can become a simple matter that can be converted into a routine procedure,
improving the efficiency of the cash management function.

Cost: Installation time:

6–12 USE INTERNET-BASED CASH FLOW ANALYSIS SOFTWARE
Larger corporations will find that the task of consolidating and investing the cash
flows from their multitude of subsidiaries is an extremely labor-intensive process,
involving the collection of information from every company location about
cash requirements and excess amounts, logging in related transactions, and
managing the flow of cash from perhaps hundreds of accounts to centralized
investment vehicles—and doing so every day. The labor associated with this