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Managing Cash Disbursements when Money is Tight - Nov 5, 2009

Posted by: David Kirkup in Articles

There are four key stages in the corporate disbursement process. Tightly managing the process at each stage can ensure that you really take control of purchases - as the alternative is not a good one. Many companies fall down on this process, because they have not taken the time (or have no one who is capable ) to review the whole disbursement procedure and then developed controls and instructions to standardize and control.

Vendor Set Up

PO Approval. Who is allowed to issue Purchase Orders? Is there a written procedure. Are vendors aware that POs must be issued for all purchases.
Vendor Approvals and Set Up. What criteria do you use for vendors? How many vendors of each type? Is a third party signing off on new Vendor set up, to ensure the Vendor is valid? Have you separated duties so that a Cashier cannot create a Vendor in the system? Do you review Vendor lists to look for similar names?
Negotiate Payments and conditions. Do you accept vendor agreements, or do you negotiate terms and conditions. Many vendors will provide extended credit to maintain relationships and encourage new ones. Vendor credit is very cheap, so always worth negotiating. Are you clear on freight responsibility and delivery terms?

Receive Invoices

Who and Where? Do you have a process to ensure that incoming invoices are logged, booked into the accounting system and then approved for payment?
Delegation of Authority. Do you have approval levels, and must all invoices be approved by an originator?
Matching to PO and Delivery. Do you ensure that every invoice quotes a PO Number and can be matched to a valid order? Do you ensure that delivery and condition is inspected and logged, before an invoice can be paid?

Pay Invoice

Paper. Are you controlling check disbursement with signature authorities and reconciliations? Are payroll reports and expense reports approved and reconciled before payment?
OnLine. Are you using ACH for regular payments like rent, payroll and loans? Online bill pay can streamline the process of payment, and avoid some of the control issues with paper checks.

Reporting

Is a check register maintained and reconciled frequently? Void checks should be accounted for and old outstanding checks should be voided periodically.
Discounts and Penalties. Monitor discounts to take advantage of early pay situations. Ensure that payments are not routinely late due to timing issues - this can be a particular problem with large lease payments - when the actual bill arrives two days before the due date and a large late penalty is applied.
Monitor Crime and Fraud. Be aware of many common fraud techniques and ensure there are some basic controls in place. If issuing large numbers of small value checks use "Positive Pay" lists to avoid small check fraud. Monitor Vendor names and Employees to ensure fake names don't get created. Change duties and rotate staff amongst tasks, ensure employees take vacations. Be suspicious.
Allocate Expenses. Expenses should be attached to departments, products, events or other divisions, so that costs can be viewed in total as well as individually. That $50 expense item might present a problem when you find scores of similar charges for one project.

There are many ways to control the Cash Disbursements cycle in order to ensure that payments are authorized and correct, and that maximum use of supplier credit is being made. For more information contact David Kirkup, Partner at B2B CFO on 404 348 0326 or dkirkup@b2bcfo.com.