DELAY OF CASH OUTFLOW BASIC INFORMATION AND TUTORIALS

There are various ways to delay cash disbursements, including:

1. Using drafts to pay bills since drafts are not due on demand. When a bank receives a draft it must return the draft to the issuer for acceptance prior to payment. When the company accepts the draft, it then deposits the required funds with the bank; hence, a smaller average checking balance is maintained.

2. Mailing checks from post offices having limited service or from locations where the mail must go through several handling points, lengthening the payment period.

3. Drawing checks on remote banks or establishing cash disbursement centers in remote locations so that the payment period is lengthened. For example, someone in New York can be paid with a check drawn on a California bank.

4. Using credit cards and charge accounts in order to lengthen the time between the acquisition of goods and the date of payment for those goods.

5. Disbursing sales commissions when the receivables are collected rather than when the sales are made.

6. Maintaining a zero balance account (ZBA) where zero balances are established for all of the company’s disbursing units. These accounts are in the same concentration bank.

Checks are drawn against these accounts, with the balance in each account never exceeding $0. Divisional disbursing authority is thus maintained at the local level of management.

The advantages of zero balance accounts are better control over cash payments, reduction in excess cash balances held in regional banks, and a possible increase in disbursing float.

7. Using a controlled disbursement account. With this system, almost all payments that must be made are known in the morning. The bank informs the firm of the total, and the firm transfers (usually by wire) the amount needed.