Accounting Best Practices, Fifth Edition

6–6. Implement Controlled Disbursements

The person who is in charge of managing corporate cash flows is always trying to find ways to retain cash for investment purposes, thereby earning interest for a company. There are unethical ways of doing so, such as not paying suppliers even when previously agreed-upon pay dates have been surpassed. However, these activities can destroy a company’s reputation with its suppliers and even impact its credit rating.

A legitimate way to retain cash for an extra day or two is to use controlled disbursements. This best practice is based on the principle of mail float, which means that one can print and immediately mail a check to pay for an invoice on its due date, and the supplier can receive and cash it, but the check will not clear for a day or two longer than was previously the case, resulting in extra time during which a company still has control over its funds. For example, a company in Denver can issue checks that are made payable to a bank in Aspen, Colorado, which, due to its isolated location, requires an extra day for checks to clear. When checks are presented to the Aspen location for payment, a daily batch of cash required to cover the payments is forwarded to the company’s primary bank. The company can access this cash requirement information every day and forward just enough money to the controlled disbursement account to cover cash requirements for that day. These extra steps give a company the capability to keep virtually all of ...