Consider two scenarios:

1)A hardware shop purchases its inventory products using only cash. It provides the shopkeeper with cash at the beginning of the week and the shopkeeper is responsible for purchasing inventory to resell.

2)A solar water heater distributor pays its suppliers for its inventory using only cheques. Every payment can be traced back to a supplier invoice.

Which company do you think has the biggest risk of loss? Why?

The hardware shop will have difficulty tracing the amount of cash spent. It is also easier for the shopkeeper to steal some of the cash by claiming that the inventory was more expensive than what the shopkeeper paid. The hardware shop would have to make sure that each transaction is supported by a receipt so every franc given to the shopkeeper can be traced to a receipt.

The solar water heater distributor can trace each payment to an invoice. Also there is no physical cash that is being handled which lowers the risk of misappropriation and theft. However, strong controls over who has access to the bank account and who can authorize transfers is required.

When possible, it is a good business practice to minimize the amount of physical cash used to disburse cash.

Some transactions will necessarily require cash (motos, taxis) however as Rwanda moves to a cashless economy, the number of these transactions will decrease.

Controls over bank transfers and cheques are typically stronger and the risk of loss is reduced.