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Total Impact of Best Practices on the Cash Management Function
sudden loss of investments, while also acting as the foundation for a day-to-day
investment procedure.
Cost: Installation time:
TOTAL IMPACT OF BEST PRACTICES ON THE CASH
MANAGEMENT FUNCTION

An accounting department is well advised to implement nearly all of the best
practices advocated in this chapter, for most of them work well together to cen-
tralize funds for easier investment, while accelerating the flow of incoming cash
and slowing its outflow. The layout of the recommended best practices is shown in
the flowchart in Exhibit 6.3. That flowchart shows that most cash management best
practices are concentrated in just two areas—the inflow of cash from customers
and its outflow to suppliers. To make these best practices work most efficiently, it
is best to implement them fully in either of these two main areas in order to
achieve the most efficient flow of cash. For example, the subcategory of cash
inflows should be completely implemented, which means installing both the
lockbox and area-concentration banking best practices, prior to moving on to the
other subcategory of cash outflows. If one were to take a more scattershot approach
to implementing these best practices, the efficiency of the overall process would
be severely degraded. For example, implementing the lockboxes without area-
concentration banking would run the risk of having received funds sit idle in various
bank accounts around the country, since the area-concentration banking practice,
which automatically moves the funds into a central account, has not yet been
implemented.
If it is not possible, for whatever reason, to implement a cluster of these best
practices, then it is best to first implement those with either the greatest cost-benefit
or else the one that will result in the greatest increase in operational efficiency.
Under this scenario, the best practices with the greatest cost-benefit impact would
be either controlled disbursements or lockboxes, since both approaches result in
the retention of cash for a longer period, which gives a company more days to
invest it. Alternatively, if efficiency is the main implementation criterion, then a
controller should strongly consider a combination of area-concentration banking
and reducing the number of bank accounts—both practices result in much less
work for the accounting staff in tracking where cash is located in a company’s
bank accounts. However, rather than focusing on a few best practices, it is best to
implement a complete cash management system; the resulting impact on cash
flows and profitability is worth the effort.