Review of Related Literature and Studies

Related Literature and studies, foreign and local settings were reviewed by this researcher to gain better understanding of the subject.

Local Literature According to * in every business organization working capital primarily cash is very vital component for its going concern as a business entity. Cash is use at the very start of the operations and until the business organization is finally dissolved and liquidated and closed. In the initial stage of the business organization cash is needed for the following: 1. 2. 3. 4. To pay organizational cost and expenses. To purchase fixed assets To conduct operations in the production of goods and services and or purchase of inventories. To pay marketing and other operational expenses. When the business is already set-up, there should be revolving cash to be maintained that will support the periodic cash requirement. At this stage cash management will come in. Management of cash is a very vital function in the business operations and the efficient and proper use of cash is necessary for the attainment of the company s goal which is primarily PROFIT.

In reviewing total cash management system, Gregorio* stated that it is necessary for the company to look beyond cash mobilization to information mobilization to ensure that decision makers are informed quickly of cash needs and surpluses so they can take action.

It will systematize all areas into a coordinated whole so that the financial executive knows at all times what is happening at the banks, in the firm s investment portfolio, in receipts, billings, disbursements, receivables, inventory and in cash needs for short and long term.

these responsibilities are vested in the finance officer who usually holds a manager s or vice president s position. In most companies. These include time deposits. control and disbursement of cash in the company. The near cash classification is reserved for company . The term cash as stated by statement of Financial Accounting system with the cashier. It is his business to know when and where money is received. the many different money market securities. Firms holds cash (liquid assets) for two reasons: to execute financial transactions and for precautionary purposes. certificates of deposits publicly traded common and preferred stocks. cash refers to total liquid assets. made up of working cash balances plus interestbearing securities and deposits. usually interest bearing. For him to be able to perform this function effectively. internal auditing and discounting and purchasing. Concentration of accounts can be used to reduce the requirements for working balances. The management of company s cash position involves the maintenance of cash marketable securities investment level which enhances the ability of that company to meet its cash requirements while maximizing the income on idle funds. He must able to position it so that it can be used to pay the company s obligation. . According to Solomon. Saldana* stated that business firms keeps cash and near cash assets in a variety of forms. a savings account or a demand deposit balance with other assets by their unrestricted nature and ready availability for liquidation of obligations. The subsidiary functions related to the cash management role include credit collection. which should first be presented for payment before they could be available for use by the company. and other similar financial instruments with definite prospects of income. The overall cash management comprised three steps: (1) collecting and disbursing funds efficiently. (3) investing the remaining excess cash.held instruments. cashiering. the Cash Manager has to be thoroughly familiar with the cash cycle.Cash Manager therefore has a very dynamic function in the firm. (2) determining the appropriate working cash balance and. He further discussed the steps to improve the efficiency of collection and disbursement which must focus on the cash cycle of the firm. receipt. The function covers the activities related to the collection. Collection time can speed up good banking relations and the establishment of investment criteria.

1 presents the cash management model and illustrates how the primary cash management functions interrelate. Advances over the last 50 years have resulted in a cash management discipline that has a significant impact on a company¶s bottom line and on shareholder value. The Association for Financial Professionals (AFP) in the United States has more than 14. Cash management comprises at least nine major functions: 1. monitoring.´ now in its seventh edition. and management of the company¶s collections. Securing adequate sources of short-term funds 6. and account balances ‡ The gathering and management of information to use available funds effectively and identify risk Exhibit 1. there are 62 regional AFP and Treasury Management Associations. Ensuring the internal and external transfer of financial data Each of these functions will be discussed in greater detail when reviewing the responsibilities of the cash manager later in this chapter. The Cash Management Profession Managing corporate cash effectively is an integral part of a company¶s success. and the development of industry standards. The most important elements are: ‡ The efficient utilization of current assets and current liabilities of a firm throughout each phase of the business operating cycle ‡ The systematic planning. representation to legislators and regulators. supports the CCM program. Implementing the systems and services necessary to monitor. The Association of Corporate Treasurers (ACT) is an international . the Certified Cash Manager (CCM) and Certificate in Finance and Treasury Management. continuing education.FOREIGN STUDIES W hat Is Cash Management? Cash management is the art²and increasingly the science²of managing a company¶s short-term resources to sustain its ongoing activities. research. Controlling the timing of cash outflows 4. Optimizing use of any temporary cash surpluses 7. Forecasting the cash position 5. manage. Gathering timely information 8. disbursements. Accelerating and efficiently collecting cash inflows 2. A 550-page body of knowledge called ³Essentials of Cash Management. In addition.The AFP also supports its membership by providing financial tools and publications. Concentrating collected funds 3. In the process of this development. and control the cash position 9.000 members and provides a source of ongoing professional development through its certification programs. career development. and optimize liquidity. the profession has broadened its focus to encompass the functions of the treasurer (as treasury management) and financial management. mobilize funds.

such as the negotiable certificate of deposit. has been putting tools in the hands of cash managers. 4 ESSENTIALSofManagingCorporateCash Allman_ch01-05 12/27/02 8:56 AM Page 4 Historical Perspective The birth of cash management can be traced back more than half of a century when. such as Merrill Lynch¶s cash management account (CMA) 5 IntroductiontoManagingCorporateCash . requiring knowledge of the crossborder management of funds and understanding of the implications of tax and risk exposure in the broader international environment. Prior to the late 1940s. and providing solutions for the analysis and management of a company¶s cash position.Treasury Bill rate first rose to 1 percent²and there was little incentive to manage cash flows on an active basis. Globalization. These computer programs used mail times between cities and bank availability schedules (see Chapter 3) to develop optimal lockbox locations to minimize total collection float. the worldwide cash management revenue associated with domestic and cross-border payments is estimated to reach almost $310 billion per year. with the prime rate reaching nearly 20 percent by 1980 ‡ Financial innovation. driven to a large extent by the OPEC oil embargo of 1973±1974 ‡ High interest rates. in 1947. interest rates were low²in March 1948. The 1970s saw the wide-spread use of one of the first major technological innovations in cash management: the lockbox model. Technology.RCA became one of the first companies to use a lockbox to accelerate collection of payments from dealers. has added complexity and new challenges. According to the ³Global Payments 2000/1 Report´ of the Boston Consulting Group. The ACT¶s objective is to encourage and promote the study and practice of corporate treasury management and related subjects.organization with 18 regional groups in the United Kingdom and overseas. including the first products to cross traditional financial services boundaries. However. when interest rates began to rise in the late 1960s²the three-month Treasury Bill rate was almost 8 percent by the end of the decade²banks developed new investment vehicles to attract funds. the three-month U. and companies began to manage cash more aggressively. The 1980s produced a combination of conditions that encouraged the rapid adoption of cash management techniques: ‡ Significant inflation. The ACT¶s Certificate in International Cash Management (Cert CM) is offered in locations around the globe.S. on the other hand. too. It offers extensive training opportunities and treasury-related publications. by the year 2008.

³controlled´) disbursement.This legislation deregulated 6 ESSENTIALSofManagingCorporateCash Allman_ch01-05 12/27/02 8:56 AM Page 6 financial services and permitted such mergers as that between Travelers Insurance Company and Citibank.The most significant milestones of this decade were: The Interstate Banking and Branch Efficiency Act of 1994 effectively replaced the 1927 McFadden Act. which later spawned the treasury workstation (TWS). ‡ The Economic and Monetary Union (EMU) was launched at . and its successor electronic commerce (EC). Citigroup (see Chapter 8). Provided previous day balances and transaction detail electronically ‡ Commercial paper. ‡ The development of electronic data interchange (EDI). nonurgent transfers ‡ Bank balance reporting. During the 1990s. and deregulation of the banking industry continued. risk management. and the optimization of liquidity. permitting banks to branch nationwide by 1997 (see Chapter 8). technological developments progressed even more rapidly.With the TWS performing the routine data-gathering functions.Allman_ch01-05 12/27/02 8:56 AM Page 5 ‡ Technological advances in electronic banking. including: ‡ Remote (later. creating the new financial powerhouse. began to change the nature of the trade cycle and how business is conducted (see Chapters 2 and 10). forecasting. the liberated cash manager now focuses on interpretation of trends. Offered large companies a less expensive short-term borrowing alternative to traditional bank lending In the 1980s. including treasury information systems (see Chapter 6) and the introduction of automated teller machines (ATMs) Financial innovation gave rise to new products and services to meet the needs of the corporate customer. Exploited the time checks take to clear ‡ Depository Transfer Checks (later ACHs). the personal computer (PC). ‡ ‡ The 1933 Glass-Steagall Act was repealed by the passage of the Gramm-Leach-Bliley Act (1999). Introduced an electronic payment alternative to wire transfers for low-value. Permitted the transfer of funds from local collection banks to concentration banks ‡ Automated Clearing House (ACH) transfers. began the revolution that would transform the role of the cash manager from a gatherer of data to an analyzer and user of information.

A sale does not necessarily result in an immediate cash inflow. resulting in a more efficient and cost-effective organization. A company will need sufficient liquidity to finance the operations until funds are actually collected. introducing a centralized European Central Bank and a single currency.3 illustrates the connection between the operating.This significant development promises new and future efficiencies in cross-border liquidity management as harmonization continues to evolve throughout the EMU and as new countries join the union (see Chapter 7).2).The purchase of raw materials leads to additional. and treasurers are learning to reduce their dependence on cheap short-term loans. Banks are finding themselves in fierce competition with nonbank providers as suppliers of financial services. for 11 European countries. The Operating Cycle and the Cash Flow Timeline For the majority of companies. W hy Cash Managers Are Needed The cash manager is responsible for managing the imbalances between a company¶s cash inflows and cash outflows caused by both the operating cycle and the nature of cash flows. An understanding of both con7 IntroductiontoManagingCorporateCash Allman_ch01-05 12/27/02 8:56 AM Page 7 cepts is necessary. such as collections and disbursements. Exhibit 1. that is. in turn. ongoing expenses associated with the conversion process. Each industry will have its own pattern of cash and operating cycles. in particular how they relate to individual companies and their industry. converting them into goods and services. cash. the Web is reengineering business processes and the way by which companies assess their core competencies. Cash management is headed for interesting times.The Internet has brought the world to the doorstep of even the smallest company. The usual pattern is for cash outflows to precede inflows. and accounting cycles.the end of the last century. . the timing of cash inflows and cash outflows. ‡ Technology enabled the centralization of treasury and/or outsourcing of selected functions. the operating cycle consists of buying raw materials. In addition. credit is becoming a scarcer commodity for corporate borrowers. trade. and selling the finished goods (see Exhibit 1. At the same time. The operating cycle. The trends of the twenty-first century are already emerging. the euro. defines the cash flow timeline.

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