Accounting Best Practices, Fifth Edition

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 centralize 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.

Exhibit 6.3. Impact of Best Practices on the Cash Management Function ...