Accounting Best Practices, Fifth Edition

6–9. 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 transactions. 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 correct. Another example is a large payment that must go to a supplier at once, possibly 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 authorization 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 ...