Introduction to Corporate Finance

19: Cash, Payables and Liquidity Management

several US courts have ruled that positive pay is a ‘commercially reasonable’ measure to prevent cheque

fraud. This means that a company that does not use this service when it is available may find itself liable

for fraudulent items accepted by its bank. A recent development in this area is that more companies are

using payee/beneficiary verification, or reverse positive pay, to make sure that the payee or beneficiary of

the cheque has not been altered. Earlier, more basic positive pay did not include this feature.

19-3d DEVELOPMENTS IN ACCOUNTS PAYABLE AND

DISBURSEMENTS

We turn now to consider some recent methods for managing accounts payable and the attendant

disbursements.

Integrated Accounts Payable

Integrated accounts payable, also known as comprehensive accounts payable, provides a company with

outsourcing of its accounts payable or disbursement operations. The outsourcing may be as minor as

contracting with a bank to issue cheques and perform reconciliations or as major as outsourcing the

entire payables function.

One of the most typical approaches to A/P outsourcing is to send a bank (or other financial service

provider) a data file containing a listing of all payments to be made. The bank will maintain a vendor

file for the company and send each vendor payment (in the preferred format) in accordance with the

company’s remittance advice.

Purchasing or Procurement Cards

Many companies are implementing purchasing (or procurement) card programs as a means of reducing the

cost of low-dollar indirect purchases. Though companies have been using credit cards for travel and

related expenses for many years, they have only recently begun using them to make routine purchases

of supplies, equipment or services. A company issues purchasing cards to designated employees, but

it limits the dollar amounts that may be spent and stipulates which vendors can be used. Companies

that have implemented such programs report significant cost savings from streamlining the purchasing

process for low-cost items. The other advantage is that the company can pay the issuer of the purchasing

card in a single, large payment that consolidates many small purchases.

Fraud Prevention in Disbursements

In recent years, disbursement fraud – especially related to cheque payments – has increased significantly.

Fraudulent cheques can be created with inexpensive scanners, computers and laser printers. As a

result, fraud prevention and control have become even more important in the accounts payable and

disbursement functions. Some of the common fraud prevention measures include the following:

■ creating and disbursing cheques according to written policies and procedures

■ separating cheque-issuance duties (approval, signing and reconciliation)

■ using safety features on cheques (such as microprinting, watermarks and tamper resistance)

■ setting maximum dollar limits and/or requiring multiple signatures on cheques

■ using positive-pay services

■ increasing the use of electronic payment methods.

LO19.5

integrated accounts

payable

Provides a company with

outsourcing of its accounts

payable or disbursement

operations. Also known as

comprehensive accounts

payable

purchasing (or

procurement) card

programs

Programs in which a company

issues designated employees

purchasing cards with

spending limits, usable only at

stipulated vendors