FIN4320_Lecture_11_Presentation(35p)

FIN4320_Lecture_11_Presentation(35p) - Accounts Payable and...

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Unformatted text preview: Accounts Payable and Disbursements Disbursement and Accounts Payable Objectives Reduce Costs Opportunity Costs Excess borrowing or lost investment income Early payments or missed discounts Disbursement Account Costs Fixed Costs Account maintenance Variable Costs Transfer costs Checks paid Overdraft Costs Explicit costs plus damage to banking relationship Disbursement and Accounts Payable Objectives Access Information Status of Accounts Maintain Relationships with Vendors Control and Fraud Prevention Need written policy outlining authority and responsibility Manage Disbursement Float Disbursement Float Time from when a check is mailed and when it is deducted from the payors account Consists of: Mail Float Processing Float Clearing Float Disbursement Float Collection Float Mail Float + Processing Float + Availability Float This Is A Negative Float For The Collecting Firm Disbursement Float Mail Float + Processing Float + Clearing Float This Is A Positive Float For The Disbursing Firm Disbursement Float Value Of Float Each Day Of Float Is Worth: Float*[(1+OC/365) Days- 1] Example $10,000,000 In Float And The OC Is 8%, Each Day Of Float Is Worth: $10,000,000*[(1 + .08/365) 1- 1] = $2,192 Disbursement System Considerations Centralization versus Decentralization Centralized Check Issuance Advantages Reduce costs Excess cash is minimized and concentrated Better coordination with cash inflows More accurate company wide cash balance information Better security Disadvantages May miss discounts due to delays May increase disbursement float at payees expense Requires higher degree of coordination between field offices and home office Disbursement System Considerations Centralization versus Decentralization Decentralized Check Issuance Advantages May be more efficient in decentralized companies Use of local banks improves payee relations Easier to resolve disputes with payees Disadvantages Excess balances Less disbursement float Less accurate company wide cash balance information Less security Higher reconciliation costs Disbursement System Considerations Centralization versus Decentralization Combination Local checks written on a centralized disbursement account Advantages Lower excess balances than decentralized system Fewer banking relationships than decentralized system More local control than centralized system Better vendor relationships than centralized system Approval of payments at the local level Disbursement System...
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FIN4320_Lecture_11_Presentation(35p) - Accounts Payable and...

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