Cash control: Transparency, control and clarity.
Revenue gets a great deal of attention in business. How much are we bringing in? What are our receivables? How quickly are customers paying?
Those questions matter. But there is another side of cash flow that businesses sometimes manage with far less discipline: the money leaving the bank.
We have limited control over exactly when revenue comes in and how much arrives at any particular moment. We have considerably more control over when approved expenses are paid and how cash leaves the business.
That makes cash control one of the most important internal processes a business can establish.
The objective is not to avoid paying bills or delay legitimate obligations. Bills need to be paid accurately and on time. The objective is to create a disciplined, transparent process around what gets paid, when it gets paid, and who has the authority to approve it.
1. Establish a designated bill-pay day.
Choose one day each week when approved invoices that are due are paid. For example, Friday might become bill-pay day.
And I cannot stress this enough: pay what is due.
If an invoice has been properly approved and is due, pay it. If it is not yet due, it generally does not need to be paid simply because an invoice has arrived.
Creating a consistent payment schedule establishes a predictable rhythm for the business and makes cash leaving the company easier to monitor.
2. Establish an invoice and expense deadline.
Once you have a designated payment day, work backward.
If bills are paid on Friday, invoices and expense requests might need to be submitted by Monday or Tuesday to be considered for that week’s payment cycle.
This gives the appropriate people time to review the expense, verify the documentation, approve the payment, and address questions before money leaves the account.
Instead of invoices arriving and being paid randomly throughout the week, there is a process.
3. Separate approval from payment.
The person who sends a payment should not necessarily be the only person deciding whether that payment is appropriate.
Establish an approver and, depending on the size of the transaction, consider requiring a second level of approval for larger expenditures.
The purpose is straightforward: someone other than the person initiating the payment verifies that the vendor, amount, documentation, and payment are appropriate.
That additional oversight creates an important internal control and can help reduce errors, unauthorized payments, and fraud.
4. Establish rules for cash leaving the business.
A disciplined cash-control process needs rules.
The specifics will depend on the company, but some basic principles to consider include:
Do not issue payment without appropriate documentation and approval.
Pay invoices according to their legitimate due dates rather than automatically paying everything immediately upon receipt.
Review automatic drafts and recurring payments carefully. Essential or contractually required automatic payments may need to remain in place, but businesses should understand exactly what is authorized to withdraw money from their accounts.
Consider whether your payment schedule allows periods when unnecessary cash outflows are minimized, while always honoring payroll, contractual commitments, statutory obligations, and invoices when they are due.
The point is not simply to keep money sitting in an account. The point is to become deliberate about cash management.
Every automatic withdrawal, recurring subscription, vendor authorization, employee card, and payment method represents another way money can leave the business.
When we enter our payment information on every website and give every vendor unrestricted access to withdraw funds, we are essentially saying:
“Here is my kingdom. Take what you want, when you want.”
That is not cash control.
Cash discipline takes time.
A business should not expect its cash-management process to transform overnight.
In my experience, it can take time to establish the procedures, get everyone accustomed to them, identify exceptions, and develop the discipline necessary to make the process work.
But the underlying concept is simple.
We control what leaves.
There is considerably more uncertainty around what comes in. Customers may pay late. Sales fluctuate. Collections vary. Revenue does not always arrive exactly when we would like it to.
So if a business wants greater control over its cash position, it makes sense to pay close attention to the side of the equation it can manage: cash outflow.
And trust me, the bank does not care about your cash-control process. That responsibility belongs to the business.
The benefits go beyond the bank balance.
A disciplined cash-control process can create benefits throughout the company.
Stronger fraud prevention.
Approvals and consistent payment procedures create recognizable patterns. When transactions occur outside those patterns, they can be easier to identify and investigate.
More consistent vendor relationships.
A clear payment policy can help establish predictable expectations with vendors. A business that follows an organized process and honors its obligations consistently can build credibility and trust.
Better working-capital management.
Controlling when cash appropriately leaves the company can help the business manage its available working capital more intentionally.
Greater liquidity and preparedness.
Cash is the most liquid asset on the balance sheet. Maintaining appropriate liquidity can give a company greater flexibility when unforeseen events occur.
Better control over employee spending.
Business credit cards with appropriate limits and controls can help manage employee and contractor spending. Talk with your banker about the options available to your company and establish limits appropriate for each person’s responsibilities.
Put the policy in writing.
This may be the most important part.
A cash-control process should not exist only in the owner’s head.
Develop a written policy that defines how invoices are submitted, who approves them, when payments are made, what documentation is required, how exceptions are handled, and who has authority over company funds.
Because if the policy is not written and consistently applied, it is not really a policy.
It is a great idea.
Implementation is where businesses often need the most direction. Changing from an informal payment environment to a disciplined cash-control process requires defined steps, accountability, oversight, and consistency.
If reviewing the bank account requires someone to sit down and try to remember what every transaction was, the problem may not be the people involved.
The problem may be the process.
I have a name for that: cash anarchy.
And after all, if cash is still king, doesn’t the king of the business deserve some of the strongest safeguards and controls?
Is your business treating cash like a king or a pauper?
Take an overhead view of your company’s internal controls.
Start with one simple question: Do we have a written cash-control policy?
If the answer is no, start there.
Then look at where management attention is going. Is the business focused almost entirely on revenue and collections while giving considerably less attention to cash outflows?
Revenue is essential. Collections are essential. But neither tells the entire cash-flow story.
A company can produce substantial revenue and still have a bank balance that does not reflect the strength of those sales.
Sometimes the answer is not simply to generate more revenue.
Sometimes the business needs better control over the cash it already has.
The concepts above are general guidelines for evaluating internal cash controls. Appropriate procedures will vary depending on the business, its obligations, and its circumstances. Changes to payment procedures should be considered as part of the company’s overall financial and internal-control process rather than implemented in isolation.
If cash is leaving the business without a clear system for documentation, approval and timing, it may be worth taking a closer look at your internal controls. Our accounting team can help you evaluate the process and identify where greater structure may be beneficial.
