copyright 2005 by thomson learning, inc. chapter 11 cash disbursement systems order order sale...
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Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Chapter 11Chapter 11Cash Disbursement SystemsCash Disbursement Systems
OrderOrder Order Order Sale Sale Payment Sent Cash Payment Sent Cash PlacedPlaced Received Received Received Received Accounts CollectionAccounts Collection < Inventory > < Receivable > < Float >< Inventory > < Receivable > < Float >
Time ==>Time ==> Accounts Accounts Disbursement Disbursement
< Payable< Payable > < > < Float Float > > Invoice Received Payment Sent Cash DisbursedInvoice Received Payment Sent Cash Disbursed
OrderOrder Order Order Sale Sale Payment Sent Cash Payment Sent Cash PlacedPlaced Received Received Received Received Accounts CollectionAccounts Collection < Inventory > < Receivable > < Float >< Inventory > < Receivable > < Float >
Time ==>Time ==> Accounts Accounts Disbursement Disbursement
< Payable< Payable > < > < Float Float > > Invoice Received Payment Sent Cash DisbursedInvoice Received Payment Sent Cash Disbursed
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Learning ObjectivesLearning Objectives
Identify the environmental variables influencing Identify the environmental variables influencing disbursement decisions. disbursement decisions.
Identify the major disbursement mechanisms, Identify the major disbursement mechanisms, relevant institutional aspects, and major relevant institutional aspects, and major implementation variations.implementation variations.
Specify the major funding alternatives for Specify the major funding alternatives for disbursement accounts.disbursement accounts.
Conduct valuation of payment mechanism Conduct valuation of payment mechanism decisions.decisions.
State the contribution of and steps involved in State the contribution of and steps involved in disbursement location model applications.disbursement location model applications.
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Disbursement Policy: 4 PrinciplesDisbursement Policy: 4 Principles
Maximize value through payment timingMaximize value through payment timing Optimize the accuracy and timeliness of Optimize the accuracy and timeliness of
informationinformation Minimize balances in disbursement accountsMinimize balances in disbursement accounts Prevent fraudPrevent fraud
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Cash Disbursements and the Cash Cash Disbursements and the Cash Flow TimelineFlow Timeline
Payment systemPayment system Ethics and organizational policiesEthics and organizational policies Decentralized v.s. centralized disbursementsDecentralized v.s. centralized disbursements Organizational structureOrganizational structure Banking systemBanking system Treasury information systemTreasury information system Cash flow characteristicsCash flow characteristics
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Cash Flow TimelineCash Flow Timeline
Mail Processing ClearanceMail Processing ClearanceFloatFloat Float Float Float Float
Availability SlippageAvailability Slippage FloatFloat
Drawee writes and mails checkDrawee writes and mails check
Payee or lockbox receives checkPayee or lockbox receives check
Payee deposits checkPayee deposits check
Payee receives collected fundsPayee receives collected funds
Drawee bankDrawee bank account debitedaccount debited
Disbursement FloatDisbursement Float
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Decentralized vs. CentralizedDecentralized vs. Centralized
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Organizational StructureOrganizational Structure
Functional areas impacting disbursementsFunctional areas impacting disbursements– Treasury departmentTreasury department
– Accounts payable departmentAccounts payable department
– ProductionProduction
– Purchasing departmentPurchasing department
– Personnel departmentPersonnel department
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Disbursement SystemsDisbursement Systems
SimpleSimple
Complex systemsComplex systems
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Simple SystemsSimple Systems
Manual and paper-basedManual and paper-based
Demand deposit accountsDemand deposit accounts
Payroll servicesPayroll services
DraftsDrafts
Account reconciliationAccount reconciliation
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Complex SystemsComplex Systems
Paper-based systemsPaper-based systems Account fundingAccount funding Electronic disbursing systemsElectronic disbursing systems Electronic data interchangeElectronic data interchange
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Disbursement System TrendsDisbursement System Trends
Comprehensive payablesComprehensive payables Purchase cardsPurchase cards Payables security/fraud preventionPayables security/fraud prevention Use of Internet for ordering and paymentUse of Internet for ordering and payment
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Global Disbursing SystemsGlobal Disbursing Systems
System differencesSystem differences International disbursing risksInternational disbursing risks Intracompany paymentsIntracompany payments
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Optimizing the SystemOptimizing the System
Selecting the optimal disbursing mechanismSelecting the optimal disbursing mechanism Establishing a disbursement networkEstablishing a disbursement network Selection of the disbursement bank(s) and Selection of the disbursement bank(s) and
location(s)location(s) Selection of the funding mechanism(s) for the Selection of the funding mechanism(s) for the
disbursing accountsdisbursing accounts
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A PV Model for Optimal Disbursing A PV Model for Optimal Disbursing MechanismMechanism
Present value of check paymentPresent value of check payment
A APVPVcc = ------------------ + VC = ------------------ + VCcc
[1 + i(n [1 + i(ncc + c + ccc)])]
Present value of electronic paymentPresent value of electronic payment
A APVPVee = ------------------ + VC = ------------------ + VCee
[1 + i(n [1 + i(nee + c + cee)])]
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A Model for Selecting Bank(s) and A Model for Selecting Bank(s) and Location(s) Based on the Lockbox Location(s) Based on the Lockbox Cost FunctionCost Function
Max:Max:
Net Profit = N [(F x D x i) - VC] - FCNet Profit = N [(F x D x i) - VC] - FC
where:where:– N = number of checksN = number of checks
– F = Average Face ValueF = Average Face Value
– i = Daily Opportunity Ratei = Daily Opportunity Rate
– VC = Per Item Processing CostVC = Per Item Processing Cost
– FC = Fixed CostFC = Fixed Cost
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
SummarySummary
Objective of a disbursement system: pay with the right Objective of a disbursement system: pay with the right method, at the right time, in an efficient manner.method, at the right time, in an efficient manner.
Disbursement systems are simple and complex.Disbursement systems are simple and complex. Simple systems tend to be paper based and use basic Simple systems tend to be paper based and use basic
funding mechanisms.funding mechanisms. Complex or sophisticated systems are prone to use Complex or sophisticated systems are prone to use
electronic payments, controlled disbursement accounts electronic payments, controlled disbursement accounts and ZBAs with electronic funding of the accounts.and ZBAs with electronic funding of the accounts.
Disbursement systems should be well coordinated with Disbursement systems should be well coordinated with cash collection and cash concentration systems.cash collection and cash concentration systems.