The Advantages of the Transaction Processing Cycle
Companies use transactions in many areas of their operations to manage each part of the business. Transaction processing starts by capturing and validating the data, such as using a cash register or checking received freight against an invoice. Transaction-specific steps happen next, such as calculating or classifying the transaction. Finally, business-maintained databases must be updated with the processed information. These processes have advantages to the company.
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Definition
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The methods and procedures a business uses through the three-step process to monitor transactions is called its transaction processing system. The time that it takes for a transaction to start at the first step of the system and proceed through the final step is called the transaction processing cycle. Some transactions have relatively short cycles, such as a cash sale rung up at a register, while others may take considerable longer.
Disbursement Cycle
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The time that it takes for a business to complete paying an invoice is called the disbursement cycle. This starts with receiving an invoice for products or services and ends when the payment for this invoice clears the bank. A business uses the disbursement cycle to its benefit by maximizing the time that it takes to pay a bill. The business can use this money for other purposes or earn interest on the money.
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Receivables
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The same methods you use with the disbursement cycle to maximize the time that it takes to pay a bill also can be used by your vendors with invoices from your company. To collect your money sooner, you may offer a discount for prompt payment. Other methods, such as lock boxes or other electronic payment methods, can cut down on the time it takes to collect receivables.
Zero Balance Accounts
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The transaction processing cycle can result in surplus cash that your business may have on hand before it needs it to pay bills. Without a plan to use this money, you receive minimal benefits from the transaction processing cycle. You can establish zero balance accounts or other sweep accounts to make use of surplus cash. Make arrangements in advance for your bank or a brokerage house to withdraw money from the account that is not needed immediately for business use. If your business has a considerable amount of surplus cash available, even for just one day, investing this cash in a money market or other investment account until it is needed can make a significant difference to the bottom line.
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