Treasury Management: The Practitioner's Guide

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Cash Transfer Methods

The treasurer should understand the implications of different methods of transferring cash to or from a company, since there are significant differences in the costs and cash flow speed of each one. Further, the level of manual processing and related controls is significantly different for each kind of transfer, which has a major impact on the long-term efficiency of the finance and accounting functions. This chapter intends to give the treasurer a thorough understanding of each form of cash transfer; when it should be used; what it will cost; and any required policies, procedures, and controls.

CHECK PAYMENTS

A check payment is made on a paper document, which has traditionally been physically routed from the payer to the payee, to the payee’s bank, and then back to the payer’s bank. The number of routings and the need for physical handling of the check results in significant delays in the transfer of cash between the principal parties.

The vast majority of checks are issued directly by companies. However, they may also be issued directly by a bank, which is called a bank check or bank draft. The bank check is a payment on behalf of the payer, which is guaranteed by the bank (and therefore of value to the payee). The bank can safely issue this guarantee because it immediately debits the payer’s account for the amount of the check, and therefore has no risk. Not only is this a safe transaction for the bank, it is also beneficial to the bank, since the ...