Cash Management

Business cash management concerns cash collections, controlling disbursements, covering shortfalls forecasting cash needs, investing idle funds and compensating the banks that support these activities.

Since overall cash flow involve tax and finance it is best for staff in tax and accounting department work closely together. Cash flow management require close coordination between the treasury and operations. Use of technology that captures accurate information on cash flow management is important in effectively managing today’s volatile market.

Effective cash flow management ensures every coin is at work either covering payment of cheques or producing income. The following are some of the best practices to manage cash flow:

1.Keep few bank partners

Leading companies consolidated their financial accounts, using fewer banks. Through this they can depend on a few banks for the services and not a single bank so that should one bank have problems their operations are not affected.

Consolidating bank accounts may bring in process efficiency. The company treasurer is able to keep tab line by line of banks transactions and can negotiate bank fees and procure preferential services. When shopping for bank keep cash management needs at heart by gathering inputs from all departments that will be affected by the choice of bank selected.

Leading companies appoint a team of financial experts including bank relationship manager to determine how best a bank meets the company’s needs and create detailed service level agreements with chosen banks.

2.Develop accurate cash forecasting methods

Cash flows are uncertain and companies use forecasts to predict it by comparing receipts and disbursements. Best practice companies use models that give accurate figures.

Sources of available quantitative and qualitative business intelligence range from shipping data and sales orders to buying patterns.

Forecasts are based on seasonal, monthly, daily and cyclic patterns and trends. Forecasts can be explained as short term, medium term and long-term. Short term can track how a business unit fares, medium term aid in managing trends and seasonal price fluctuations, long-term forecasts help a company reach far reaching goals.

Integrating information into the forecast as soon as it is available and using a rolling format helps the company to time disbursements to be funded by incoming receipts. Further, use of a rolling forecast, simulation techniques, and web-based treasury software can improve forecasting accuracy and see the company through cash-critical periods.

3.Increase investment yield at lowest risk and cost

Companies develop investment guidelines on what is considered acceptable investments. A common understanding should be kept by the top managers on a portfolio of investment opportunities which can be exploited when opportunities become available.

Alternatively a company may outsource an investment manager to carry out this exercise. Some companies find this more cost effective especially for a small portfolio.

In addition leading companies avoid funds sitting idle in non-interesting bearing accounts by making use of sweep account and zero balance accounts. Sweep accounts allow companies to move idle cash into overnight investments at the end of each end of business day.

4.Evaluate cash management structure regularly

Frequent review routine management structure need to be conducted to identify process that require to be improved, provide a tracking measure and provides assurance that the company data is reliable. Reviews check how bank manage the bank cash, their charges and yields on investment.

To gather this information the company puts together a combine questionnaire and visit on site the bank partner. It is best to prepare the questionnaires before site visit.

5.Create a centralized cash management structure that serves global needs.

Cash flow management is made complex for entities with operations n more than one country. Overall cash management operates on two levels. To begin with each country’s cash management system, addressing standard treasury functions like collections within national borders.

The second is a network that connects the domestic systems and various currencies while integrating cash management with functions such as purchasing, sales and accounting.

Centralizing cross-border treasury operations activities is best done gradually. Companies can centralize within each country before centralizing cross-border activities or vice versa, again, based on the specific needs of each company. Physical cross-border transfers of funds are kept to a minimum to reduce funds movement.

Instead, many companies use multicurrency accounts, netting, and pooling.

Traditionally, companies purchase international cash netting services from banks to lower transaction fees and reduce foreign exchange expenses. Netting reduces the transfer of funds between subsidiaries to a net amount.

Leading companies also establish in-house payment factories to manage accounts payable for their subsidiaries. Payment factories allow companies to net and bundle payments, lowering the number of transactions and transaction costs.

6.Automate financial reporting to drive efficiencies

Companies are quickly realizing the benefits of automating financial reporting processes. Reasons include process efficiencies that are integral to many treasury systems, and the high risk involved with spreadsheet accounting--both of which contribute to a lack of internal financial controls.

These problems can invite budget shortfalls, audit exposure, loss of stakeholder trust, and even government intervention. The innovative technological alternatives now available to generate accurate, complex financial deliverables include web-enabled treasury systems for global cash management and international reporting taxonomies such as extensible business reporting language (XBRL).

XBRL is a standards-based method that allows users to exchange and compile financial information across all technologies. These solutions can facilitate collaboration and data sharing, resulting in faster and more accurate financial reporting, more effective reporting controls, and cost savings in every area of cash management.

Financial managers are better able to focus on relationships with banks, trading partners and customers, and users have real-time access to accurate business unit transaction activity. These benefits promote better overall financial decision making and help a company gain or maintain a competitive edge.

The treasury managers try to do their cash management to meet organisational budget