Managing Cash Flow

62 Managing Cash Flow—Receipts and Disbursements
than agreed-upon terms, be selective as to which vendors are placed in this category.
Typically, it is the nonessential vendors (e.g., service providers) who are the
first to get hit.
Many times, the company can manage to get some payment relief without
hurting its relationships with vendors if it discusses the problem with them and
gets their agreement to accept slower payments for a defined period of time. Even
cold-hearted suppliers recognize that companies go through cash squeezes from
time to time. A discussion in advance can often lead to a mutually satisfactory
arrangement that will ease the cash flow problem and maintain good working
relationships with the vendors. Their primary interest is likely to be keeping their
customer base, and an open communications policy with them can keep the company’s
relationships on a solid footing. In fact, they might even think more highly
of the company because it informed them about the problems and plans for
resolving them.
Payment Systems
CASH FLOW MANAGEMENT
IS A ZERO SUM GAME.
There are a number of procedures available for managing disbursement activities.
We have previously discussed the possibility of using dispersed collection locations
to speed up the collection of funds. Conversely, remote payment locations
can be used to slow the process of disbursing money through the system. For
instance, drawing checks on banks in locations remote from the payee can add
time to the check-clearing process and add float time to the company’s cash flow
system. The question of legality of these types of systems occasionally arises, but
they are not illegal per se. In general, be cautious about using delaying tactics. The
inconvenience and potential costs associated with them may well exceed their
benefits. And also remember that cash flow management is a zero sum game—
whatever benefit the company is able to attain comes at the expense of the other
party to the transaction. Many delaying tactics will be transparent to suppliers
and may harm the company’s relationships with them.
Managing Cash Disbursement Systems
Managing cash disbursements systems can be handled in any one of several ways
to control cash outflow and keep money in interest-bearing accounts for as long
as possible. There are three types of funding systems available.
1. Prefunding system. The simplest, safest, but least effective from the standpoint
of holding money back is a prefunding disbursements system. In