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Jedi Bentillo

Treasury Management

BA211 (3:30-4:30 pm)

June 15, 2016

Cash Management
Cash management is the corporate process of collecting, managing and (shortterm) investing cash. A key component of ensuring a company's financial stability and
solvency. Frequently corporate treasurers or a business manager is responsible for
overall cash management (Investopedia,2016).
Treasury Department
The treasury department is responsible for a companys liquidity.
The treasurer must monitor current and projected cash ows and special
funding needs, and use this information to correctly invest excess funds,
as well as be prepared for additional borrowings or capital raises. The
department must also safeguard existing assets, which calls for the
prudent investment of funds, while guarding against excessive losses on
interest rates and foreign exchange positions. The treasurer needs to
monitor the internal processes and decisions that cause changes in
working capital and protability, while also maintaining key relationships
with investors and lenders.
Ultimately, the treasury department ensures that a company has sufficient
cash available at all times to meet the needs of its primary business
operations (Steven Bragg, 2010).
Roles of the Treasury Department range from:
Cash forecasting

Management advice

Working capital

Credit rating agency


Cash management

Bank relationships

Investment management

Fund raising

Treasury risk

Credit granting

Cash Transfer Methods

Check Payments
A check payment is made on a paper document, which has
traditionally been physically routed from the payer to the payee, to the
payee's bank, and then back to the payer's bank. The number of routings
and the need for physical handling of the check results in significant
delays in the transfer of cash between the principal parties.
Wire Transfers
A wire transfer sends funds to the recipient's bank account more
rapidly than any other form of payment, and is the standard form of
international payment.
ACH Payments
The ACH is an electronic network for the processing of both credit
and debit transactions within the United States and Canada. ACH
payments include direct deposit payroll, Social Security payments, tax
refunds and the direct payment of business-to-business and consumer
Letters of Credit
When dealing with counterparties in other countries, it is difficult to
evaluate their financial condition, and the legal systems in their countries
make it more difficult to collect overdue receivables.
Due to these circumstances, exporters are more concerned with
tusing cah transfer methods that have a high probability of payments. A
well-established method for doing so is the letter of credit. This is an
arrangement where the importer's bank (the issuing bank) formally
authorizes an obligation to pay the exporter's bank during a specific period
of time, assuming that several documented conditions have been met.
Procurement Cards
A company can make smaller scale payments whit a procurement
card program. This can involve the use of debit cards, which deduct cash

directly from a company's bank account, but more commonly employ

credit cards.

Cash Payments
Inbound cash payments tend to be very small transactions, though
possibly in very high volume, especially in retail situations.

Cash Forecasting
Cash forecasting is absolutely crucial to the operation of every
organization. If there is ever a cash shortfall, payroll cannot be met,
suppliers are not paid, scheduled loan payments will not be made, and
investors will not receive dividend checks. Any one of these factors can
either bring down a business or ensure a change in its management in
short order.
Cash Forecasting Model
The core of any cash management system is the cash forecast. The
model is based on the receipts and disbursements method, which is
primarily based on a combination of actual and estimated receivables and

Cash Concentration
Larger companies with many subsidiaries, especially those
with operations in multiple countries, maintain a significant number of bank
accounts. This is an inefficient arrangement from the perspective of cash
management, since the treasury staff must track all of the individual
account balances. With such highly fragmented cash balances, it is
extremely difficult to repurpose the funds for either centralized payments,
debt paydown, or investments.
An excellent solution is cash concentration, where the cash in multiple
accounts is pooled. Pooling can be achieved either through physical
sweeping (where cash is actually moved into a concentration account or
master account) or notional pooling (where funds are not actually

transferred, but balance information is reported as though physical

sweeping had occurred).