Most small businesses have to deal with cash at some time or other. While people will often pay invoices with credit cards or cheques, there are still those who prefer cash. This can be difficult to keep tabs on.
The following practices should help you manage cash better and prevent theft by your staff:
Use a cash register so that the daily sales tape becomes another record of sales in addition to receipt books and invoices
Make sure you (or someone you trust) checks all cancellations
Never turn your back on an open cash register drawer.
Bank daily into your business account. Deposit cash out of hours through ATMs or a specialist cash handling organisation
Reconcile the cash on hand with the cash receipts and issue receipts for money received every time
Compare cash receipts with deposits entered on bank statements. Better still, use Internet banking and reconcile weekly or even daily
Maintain strict controls over expenditure from petty cash.
Cash is a high risk area, and if your cash amounts are large, you should consider insuring against cash theft.
Keeping a check on cheques
Cheques are the most common form of payment you are likely to receive for medium to large transactions, but they are still open to fraud.
When you accept a cheque from a customer, even if it is correct in every way, you can’t be sure that the drawer has sufficient funds to meet the cheque when it is presented.
Deliberately paying for goods with a cheque that “bounces” may be fraud, but it can be difficult to prove that the drawer knew insufficient funds were available to honour the cheque. However, if a customer persistently dishonours cheques you should consider reporting this to the police.
If a cheque is dishonoured, you have two separate courses of action against the debtor:
To sue for the contracted debt, or
To enforce payment of the cheque.
The latter option effectively prevents the debtor disputing an account after tendering a cheque.
A postdated cheque is treated in law exactly as a currently dated cheque. Therefore, someone who pays you with a postdated cheque admits liability to the debt.
If your employees are allowed to accept cheques, ensure they are aware of these guidelines:
Make sure the drawer initials any corrections
If you don’t know the customer, always ask for two types of identification, preferably one with a photograph. If someone has stolen a wallet or handbag they may well have plenty of false identification but they are unlikely to resemble their victim
Write identification details – phone, address and driving licence number – on the back of the cheque
Compare the signature on the cheque with that on the identification offered
Don’t accept cheques already made out to someone other than the person offering it, as the cheque might have been stolen
Don’t accept post-dated cheques
Make sure written and numerical dollar amounts match
Never accept cheques for amounts larger than the transaction, and then give cash as “change” – you stand the chance of losing both cash and goods
Cross all cheques when they are accepted and write “not negotiable” on them. A rubber stamp makes this easy and routine
Only release large orders of goods after the payment cheque has been cleared
Bank all cheques immediately. Some banks offer special pouches that you can drop off at the bank without queuing for tellers.
A book of blank cheques left lying around your premises is an open invitation to another type of fraud – forgery. Contrary to most people’s impression, banks do not regularly check the signature on every cheque.
Keep cheque books in a safe place, such as a locked drawer or filing cabinet and notify the bank to stop payment immediately when any cheques are stolen or go missing. You have a legal obligation to the bank to take care when using or filling out cheques.
Take these extra precautions with cheques:
Use one operating account per corporate entity
Require dual signatures for cheques over a fixed dollar amount
Never write cheques in pencil because they can easily be changed
Do not leave blank spaces where extra words or digits could be inserted
Initial any corrections that you make while writing a cheque
Always cross cheques or rubber stamp them “not negotiable” to prevent them being exchanged for cash or endorsed for payment into another account
Avoid making out cheques to “cash”
Never sign blank cheques to be filled in later
Never sign cheques that staff present for your signature without full supporting information, such as the invoice, delivery docket, order form, etc.
When you receive cheques store them safely. It is not difficult for someone to fraudulently endorse them for payment into their own account.
Caring for credit cards
Credit cards are an integral part of our consumer lifestyle and business culture. They help reduce paperwork for those businesses which have large numbers of small accounts or have customers who carry little or no cash.
Businesses that accept credit cards reduce their problems of managing cash, reduce debtors, and eliminate credit risks and collection costs. Advertising that you accept credit cards makes credit available instantly. This is a valuable marketing tool.
Most banks offer credit card services such as Bankcard, MasterCard and VISA. Banks credit your cheque account immediately the transaction voucher is handed in or an electronic funds transfer is made. In return, they charge a small monthly fee and a discount of about two to three percent on the value of the transaction. These charges may be negotiable and you should shop around banks and other financial institutions for a good deal.
The bank assumes all of the credit risks of the transaction provided that you follow their instructions. These require you to check the signature and validity of the card against a list of cancelled cards, and to obtain approval from the credit service before accepting the card for any individual purchases above a preset limit.
Some businesses may also consider specialist credit cards such as American Express and Diners Club. However, these companies do not credit your account daily and may charge higher discount rates.
Direct debit and credit transfer
Increasingly, businesses are turning to electronic banking because this saves handling cash and cheques as well as postage, reduces the opportunities for fraud and attracts lower bank charges.
Direct debit is used for regular payments, such as magazine and other subscriptions. The subscriber signs an authority which the supplier presents to the bank for payment as necessary. The subscriber may cancel or vary the authority at any time. Most reputable suppliers send a reminder note to the subscriber a few days before presenting the authority for payment.
Direct debit requires no action by the subscriber and therefore leads to a higher level of renewals than might otherwise be the case. You should encourage your customers to use direct debit if you charge a regular fee for some product or service.
Credit transfers are initiated by the debtor and made through a secure Internet portal. The creditor must supply bank account details as well as a tax invoice to the debtor who then transfers money from their account to the creditor’s over the Internet.
When money is credited to your account it is available for you to use immediately, without the need to wait for clearance. This is because the bank’s software ensures that it is impossible to transfer money from an account which has insufficient funds or overdraft facilities.
You should encourage your debtors to pay their accounts by credit transfer whenever possible. It reduces their transaction costs, your bank charges and speeds up payment. Creditors lose the advantage of a few days interest while the cheque is cleared, but save on costs and reduce the risk of fraud or error. They are also in a better position to negotiate lower prices with their supplier.