Many businesses issue cheques from their accounts payable department in order to meet financial obligations. These financial obligations include vendor payments, interest payments to lenders or government tax liabilities. The accounts payable department receives an invoice or a check request, which it uses to back up the payment being made. Cheques offer several advantages to businesses.
One advantage of using cheques involves the paper trail left by the check. Each check creates a paper document that details who received the payment, what day the payment was made and the dollar amount of the payment. The company can review when the cheque cleared the bank along with information regarding who signed the check. The paper trail created by the cheque allows the company to maintain its record keeping. Some companies use duplicate cheques, keeping a copy of the cheque for its own records. Employees at these companies can refer back to earlier cheques when questions arise.
Paper cheques offer the advantage of added security for mailed payments. Only the named recipient can present a paper cheque for payment. If the recipient denies receiving the cheque, the company can contact the bank to verify who presented the cheque. Any discrepancies can be resolved with the bank directly. Also some small business owners might consider paying vendors or lenders with cash. Cash provides no written proof that payment was made and leaves the business owner open to be charged again for the amount.
Paper cheques provide the business with the ability to control the payments made. Several control measures exist in the accounts payable department to ensure that cheques are written to the proper recipient for the correct amount. One employee might authorize a cheque to be written after reviewing the backup documentation. Another employee actually prints the cheques. A senior manager signs the checks. This provides three employees to participate in the cheque payment process, minimizing the potential for errors or fraud. Businesses also use pre-numbered cheques. Pre-numbered cheques allow the company to identify missing cheques immediately and take action to prevent those cheques from being cashed.
A final advantage to using cheques involves the float. Float refers to the time which passes once the company prints the cheque until the money leaves the company’s bank account. In many cases, the float only exists for a day. However, the company earns interest for that extra day before the cheque is presented for payment.