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CHAPTER 9

Authorizing and making


Contents
 Controls over payments
 Cheque requisition forms
 Expenses claim forms
 The timing and methods of payments
 Payments by cash
 Payments by cheque
 Bank Giro credits (credit transfers)
 Payments by banker's draft (payable order)
 Payments by standing order and direct debit
 Documentation to go out with payments
Controls over payments
Suppose that a company buys goods
costing $5,000.

1. Invoice from the supplier: reason for and


amount of the payment
2. Authorization of the payment: by the
purchasing director
3. Payment made to the supplier: For a
payment of $5,000, perhaps only the
finance director or managing director will
be permitted
Authorization - Illustration
Cheque requisition forms
 A form requesting that
a cheque should be
drawn to make a
payment
 E.g.:
 The advertising
manager of ABC wants
to put an
advertisement into the
local weekly
newspaper. The
newspaper wants
payment of $470
($400 + sales tax at
17½%) in advance,
and has sent a fax
letter requesting
this amount. A
receipt will be sent
later with
confirmation that
the advertisement
has been inserted
and paid for.
Expenses claim forms
 Employees make payments by their own
pocket and then claim back
 Proof should be given of the existence
and the amount of the expense (attaching
receipts, invoices)
 Insufficient supporting evidence?
 Company may refuse to reimburse the
expense.
The timing of payments

When and whom? Who decides and


how?
 Things to  Senior person

consider?  List of unpaid


 Creditterms invoices
 Discounts  Overdue
 Outstanding
 Soon due to be
paid.
Methods of payment

Commonly used Other


 Cheques  Cash
 Automated transfers  Banker's draft
(especially for salaries and
wages)
 Standing order
 Internet payments
 Direct debit
 Company credit card
or charge card
 Mail transfer and
telegraphic transfer
 Internet payments
Payments by cash
 For small payments out of petty cash
 Sometimes for wages
 Pay large amounts? Not recommended
 Rare
 Secure
 Dishonest
dealers in backstreet or
underworld businesses
Payments by cheque
 Signatures on business cheques:
 Only certain specified individuals
 With names and signatures supplied to the
bank on a bank mandate form
 Cheques above a certain value must contain
two authorized signatures
 Might consist of the chairman, all the
directors and the chief accountant or
financial controller
Payments by cheque

Advantage Disadvantage
Procedures for preparing
cheques
Step 1 Prepare list of payments
Step 2 Payments authorised, sufficient
funds available
Step 3 Check invoices to be paid
Step 4 Prepare the cheques
Step 5 Attach invoice to cheque, sign
Step 6 Mark invoice PAID
Step 7 Send cheque off to payee with
remittance advice
Examine the cheque
Lost cheques
 Step 1 Telephone
your bank saying
that you want the
cheque to be
stopped.
 Step 2 Confirm
this instruction in
writing.
Bank giro credits
 Filling in a bank giro credit transfer form
and handing this together with the
payment (cheque or cash) over the
counter at a bank
 Telephone companies
 Electricity companies
 Water companies
Payments by banker's draft
 Unlike company cheques, a banker‘s draft
cannot be stopped or cancelled after
it has been issued
 And so when a supplier receives the draft,
payment is guaranteed
Example: payment by banker's
draft
Suppose that one of your directors wants to
buy a car from Fittipaldi Motors. The cost will
be $33,334.45.
Step 1 Prepare an application for a banker's
draft
Step 2 Signatures (probably two) of authorised
officials required
Step 3 The form be sent to the bank
Step 4 The bank will return the form to the
company, together with the draft
Step 5 The form should be signed to
acknowledge receipt of the draft and then
sent back to the bank.
Step 6 The draft will then be sent or taken to the
Standing orders
 To make
regular
payments of
a fixed
amount
 Arranged by
a Standing
Order
Mandates
Direct debits

Similar Difference
 Like standing  the person who
orders, are used receives the
for regular payments who
payments initiates each
payment
 Payments can be
for a variable
amount each time,
and at irregular
Question
Libra has to make the following payments.

(a) $6.29 for office cleaning materials bought from a nearby


supermarket.

(b) $231.40 monthly, which represents hire purchase


instalments on a new van. The payments are due to Marsh
Finance over a period of 36 months.

(c) $534.21 to Southern Electric for the most recent quarter's


electricity and standing charge. A bank giro credit
form/payment counterfoil is attached to the bill. There is
no direct debiting mandate currently in force.
Solution
(a) Cash
(b) Standing order: regular fixed payments, ensure
payments made on the due dates
(c) By cheque at the bank, accompanied by the bill and
completed bank giro credit form. The bank clerk will
stamp the bill as evidence that the payment was made
(d) Direct debit mandate: Allow the Authority to debit the
amounts due direct from Libra's bank account on the
due dates. The Authority must inform Libra in advance
(e) Credit card or charge card
(f) Banker's draft: cannot be stopped or cancelled once it
is issued,
likely to be accepted by Selham Motors
Documentation to go out with
payments
 A remittance advice:
 Created by the customer
 Part of the statement sent by the supplier
 A copy of a pro-forma invoice where this
has been provided by the supplier for
payments with an order
 A bank giro credit form for telephone,
electricity and other similar bills
 A covering letter explaining what the
payment is for, when other forms of
documentation do not exist
Quiz
1 What are the three main steps in applying controls over
payments?
2 When might documentary evidence not be available for
a payment?
3 What is a cheque requisition form?
4 What is an expenses claim form used for and by whom?
5 Which methods of payment are most commonly used
by businesses?
6 Should cash be sent by post?
7 What should you do to stop a cheque?
8 What is the main difference between a standing order
and a direct debit?
9 What is the document most usually sent with a
payment by a business?
Answer
1 Obtaining documentary evidence, authorisation of
payments, restricting authority to make payments.
2 Invoice not yet received or there will be no invoice or
receipt
3 An internal document requesting that a cheque be
drawn for payment.
4 Employees will use an expenses claim form for
reimbursement
5 Cheques and automated transfer are the most
common.
6 No. It might get lost and there would be no proof
7 Telephone the bank to stop and then confirm the
instruction in writing
8 Standing orders are always for the same amount
whereas direct debit can be for a different amount each
QB 17
A cheque requisition form is
A A form requesting that a cheque should be
drawn to make payment
B A list of cheques issued on a particular day
C A request for cheque payment authorisation
when amounts payable are over a certain
limit
D A form requesting payment by cheque when
the supporting documentary evidence is
missing

Answer: A