ASSESSING THE IMPACT OF ELECTRONIC PAYMENTS ON CASH MANAGEMENT : A QUANTITATIVE APPROACH

Abstract

Despite the potentially significant benefits of electronic payment to businesses, most businesses today continue to employ the traditional check method for most of their business-to-business transactions. This research is to investigate the underlying reason and analyze the impact of electronic payment on cash management by a quantitative approach. The evaluation of the impact is based on the cost involved in the cash management activities. There are three types of cost considered in the evaluation: cost of transactions, demand for cash, processing cost and float gain/loss due to the time delay in value transfer. For the cost or transactions demand for cash, an extensive literature review was done. It is shown that it is optimal to choose a control limit policy to control the cash balance. Following the traditional models, cost is lower for higher degree of synchronization between the cash inflows and outflows. A simulation was conducted to show that, for the degree of synchronization between the cash inflows and outflows, there is little difference whether cash disbursement and receipt are realized electronically as well. Another simulation was conducted to reflect the cost of using electronic payment for different percentages of total transactions. We will take the three types of cost, cost of transactions, demand for cash, processing cost and gloat, into consideration via a simulation approach. Not only can this simulation approach help to analyze the impact of electronic payment on cost, but also help to choose the optimal extent of electronic payment adoption that achieves minimal cost.