Why Would a Financial Manager Want to Slow Down Disbursements?

A company’s financial manager is usually responsible for the financial aspects of project management. A large part of project management is balancing cash inflows from cash outflows. In some cases, a financial manager may desire to slow cash disbursements on certain projects. A few different reasons may exist for reducing these cash outflows.

Low Cash

Companies with low cash balances may need to slow cash disbursements. Financial managers often sit in on meetings with executives and other high-level managers. These meetings may spend time on reviewing current capital balances and future cash inflows. Low expected cash receipts may result in a short-term need to reduce cash disbursements. While this may be a short-term stopgap procedure, companies may use slowed cash disbursements as a long-term cash strategy.

Budget Constraints

Most projects have a predetermined budget. Financial managers must review each project’s budget to determine spending limits for various expenditures. Slowing disbursements is usually necessary to ensure costs come in under budget. Cost overruns are usually a result of projects failing to meet budget demands. Slowing disbursements can help a financial manager to review projects to ensure financial success.

Low Returns

Financial managers usually have a baseline to measure financial returns. Common methods include net present value or payback period. When a project’s cost begins to near the project’s net present value, a company will experience lower financial returns. Increases in the payback period are another signal of lower financial returns. Slowing disbursements gives financial managers the ability to improve returns through operational changes.

Considerations

Not all projects are going to have the same measuring stick. Each project can have complex calculations and other activities that need specific review. Slowing cash disbursements is just one way to evaluate a project. Reviewing cost reports, talking with operational managers and performing other analyses is necessary to keep a project on track.

References

  • "Cost Management: Strategies for Business Decisions"; Ronald Hilton, et al.; 2006

About the Author

Kirk Thomason began writing in 2011. In addition to years of corporate accounting experience, he teaches online accounting courses for two universities. Thomason holds a Bachelor and Master of Science in accounting.