Page 66 - Accounting Best Practices

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3–30 Substitute Petty Cash for Checks
A good alternative for larger companies is the PayBase Electronically Sent
Payment module, produced by Bottomline Technologies (www.bottomline.com).
This software can be linked through a custom interface to any existing accounting
package. It creates standard files from accounting records that meet ACH transac-
tion formatting standards, automatically transmits this information to the company
bank, and—the key part—automatically sends remittance details to the customer
by e-mail or fax. Given the slight delay in the transfer of ACH funds, this means
that the remittance detail may actually arrive at the supplier before the payment,
thereby giving the supplier warning to check its bank account for incoming funds
the next morning. This application can be used not only for payments to suppliers,
but also to employees for both payroll and expense reimbursements.
However, this is an expensive software package that requires the construc-
tion of a customized interface between the software and a company’s existing
accounting software package. The total price puts this best practice out of reach
of most smaller companies.

Cost: Installation time:

3–30 SUBSTITUTE PETTY CASH FOR CHECKS

Cutting and issuing a check is a lengthy, multistep process. One must match a
supplier invoice to a purchase order and receiving document, enter the invoice
into the computer, wait for the due date, and then print the check, have it signed,
and mail it to the supplier. For small payments where the supplier shows up at the
company offices, there is a simpler way.
It is much easier to pay a supplier from the petty-cash box. This approach
eliminates the entire process needed to cut a check. However, there are some
severe limitations on the use of petty cash that limit its effectiveness to a small
number of situations. First, since the intention is to bypass the usual checks and
balances of the accounts payable process, it must only apply to those payments
that are so small that no one cares if the system is bypassed. In most companies,
the amount that can be paid with minimal controls is usually below $100. For
amounts larger than this, the usual check-paying process is probably better, since
it requires tighter control over payment approvals. Another problem is that it
makes little sense to stuff money into an envelope and mail it to the supplier,
since the money can be intercepted and removed at many points along the way,
resulting in no payment. Consequently, it is better to hand the money directly to a
supplier representative, who should be on the company premises to sign for the
money. By limiting the use of petty cash to small amounts and on-site payments,
one can effectively reduce this option to a small percentage of the total amount
that most companies pay out. Nonetheless, it is a simple and effective approach
that will result in some decrease in the volume of transactions flowing through
the typical accounts payable system.