Many factors play a role in determining the maximum length of cable that can be used to connect the encoder to the controller. The largest problem with running long lengths of cable is that the cable becomes more susceptible to noise. This is due to the capacitance of the cable, the cable acting as an antenna, and the loss of power through the cable. The maximum distance of cable can be achieved by following some basic wiring principles. Do not run the cable near objects that create a lot of electrical noise. This includes AC motors, Arc welders, AC power lines, and transformers. Use twisted pair cabling when using the signal and its complement, and shielded cabling when running any type of signal. Use the highest voltage available for the output voltage. For example, if the encoder will output 5 to 24 volts, then use 24 volts. Use an Open Collector or Differential Line Driver output with a differential receiver (PM28S00) so that the maximum amount of current can be sink/sourced.
If you are using the encoder as an input to more than 1 controller, use a signal amplifier. This is also a good way to help increase the distance a signal can travel. Typical maximum distances for a Differential Line Driver are around 100 ft.or more when using a differential input, and for an Open Collector the distance is around 35 ft.