How to Manage Disbursement Options – part 1
If your company’s greatest concern is excess funds, not excess time, the A/P system can signal the availability of excess and investable funds that won’t hurt cash flow or threaten financial security. These are called disbursement options and can be managed in three ways: presentment reporting, balance reporting, and sweep accounts. Well describe them here, although you don’t need to understand them completely. But you certainly should better appreciate what your accounting department does!
Presentment reporting refers to the amount of checks presented to the bank for payment each day, an amount impossible to predict due the various floats applied by each individual vendor. Your firm establishes a separate disbursement account at the bank for the payment of those checks. The bank then reports to your company before noon the number of checks and amounts presented for payment, funds are then applied to that account to satisfy those checks. No extra funds are required on deposit for that day, allowing more for investment.
Tags: bank payment, floats, vendor