AWL cash flow structure:

Head Office

Bank

Receipts

Payments

Sales/Stock Transfers

Finished goods

In AWL the cash transactions are completely centralized. In manufacturing units they use manual cash for petty activites like travelling, other miscellenious. If we see the above cash flow figure we can understand it in better way. At first the head office allocates the cash according to the requirement of plant which is raised by the factory head for the regular work. This allocation will be mostly of projected. The head office allocates required amount in the bank account. The second stage is the cash flow from bank. Bank as a account were the head office deposits. The plant not only uses this cash, they use several other types of cash mainly Factoring Bills discounting Credit limit Factoring: Factoring is a method used by a firm to obtain cash when the available cash balance held by the firm is insufficient to meet current obligations and accommodate its other cash needs, such as new orders or contracts. The use of factoring to obtain the cash needed to accommodate the firms immediate Cash needs will allow the firm to maintain a smaller ongoing Cash Balance. By reducing the size of its cash balances, more money is made available for investment in the firms growth. A company sells its invoices at a discount to their face value when it calculates that it will be better off using the proceeds to bolster its own growth than it would be by effectively functioning as its "customer's bank."[8] Accordingly, Factoring occurs when the rate of return on the proceeds invested in production exceed the costs associated with Factoring the Receivables. Therefore, the trade off between the return the firm earns on investment in production and the cost of utilizing a Factor is crucial in determining both the extent Factoring is used and the quantity of Cash the firm holds on hand.

Many businesses have Cash Flow that varies. A business might have a relatively large Cash Flow in one period, and might have a relatively small Cash Flow in another period. Because of this, firms find it necessary to both maintain a Cash Balance on hand, and to use such methods as Factoring, in order to enable them to cover their Short Term cash needs in those periods in which these needs exceed the Cash Flow. Each business must then decide how much it wants to depend on Factoring to cover short falls in Cash, and how large a Cash Balance it wants to maintain in order to ensure it has enough Cash on hand during periods of low Cash Flow. Generally, the variability in the cash flow will determine the size of the Cash Balance a business will tend to hold as well as the extent it may have to depend on such financial mechanisms as Factoring. Cash flow variability is directly related to 2 factors: 1. 2. The extent Cash Flow can change, The length of time Cash Flow can remain at a below average level.

If cash flow can decrease drastically, the business will find it needs large amounts of cash from either existing Cash Balances or from a Factor to cover its obligations during this period of time. Likewise, the longer a relatively low cash flow can last, the more cash is needed from another source (Cash Balances or a Factor) to cover its obligations during this time. As indicated, the business must balance the opportunity cost of losing a return on the Cash that it could otherwise invest, against the costs associated with the use of Factoring. The Cash Balance a business holds is essentially a Demand for Transactions Money. As stated, the size of the Cash Balance the firm decides to hold is directly related to its unwillingness to pay the costs necessary to use a Factor to finance its short term cash needs. The problem faced by the business in deciding the size of the Cash Balance it wants to maintain on hand is similar to the decision it faces when it decides how much physical inventory it should maintain. In this situation, the business must balance the cost of obtaining cash proceeds from a Factor against the opportunity cost of the losing the Rate of Return it earns on investment within its business.

Discounting of bills:

Business activities across borders are done through letter of credit. Letter of credit is an instrument issued in the favor of the seller by the buyer bank assuring that payment will be made after certain timer frame depending upon the terms and conditions agreed, it could be either sight, 30 days from the Bill of Lading or 120 days from the date of bill of lading. Now when the seller receives the letter of credit through bank, seller prepares documents and presents the same to the bank.

The most important element in the same is the bill of exchange which is used to negotiate a letter of credit. Seller discounts that bill of exchange with the bank and gets money. Discounting bill terminology is used for this purpose. Now it is seller's bank responsibility to send documents and bill of exchange to buyer's bank for onward forwarding to the buyer for the acceptance and the buyer finally, accepts bill of exchange drawn by the seller on buyer's bank because he has opened that LC. Buyers bank than get that signed bill of exchange from the buyer as guarantee and release payment to the sellers bank and waits for the time span will buyer will pay the bank against that bill of exchange. Credit Limit: A credit limit is the maximum amount of credit that a financial institution or other lender will extend to a debtor for a particular line of credit (sometimes called a credit line, line of credit, or a tradeline). For example, it is the most that a credit card company will allow a card holder to take out at once on a card. This limit is based on a variety of factors ranging from an individual's ability to make interest payments, an organization's cashflow and/or ability to repay the principal, to the credit standards employed by the lender. A credit limit is also based on the borrower's recoverable assets in the event of default. Credit limits are most often seen by consumers in the form of revolving lines of credit known as credit cards. They are also used in the extension of open account credit terms from business to business. Other examples include home equity lines of credit, residential mortgages/owner-occupier home loans with redraw facilities, a commercial line of credit or a Bank guarantee. The limit imposed in most cases is fixed for the life of the product.

The above are the some of the methods which plant uses for the payments for raw material, salaries, wages, other expenses. With the above expenses the goods are manufactured. The finished goods will be disbursed in two ways. Sales Stock transfers Sales: These are normal sales sold to employees, and to the government according to the contract. But these sales counts for very less. These sales wont cross 5%of the whole turnover. Stock Transfers: These account for more than 90% of the turnover. Stock transfer includes sending finished goods to the respective depots according to the requirements. The both sales and stock transfer receipts directly deposited in to the bank. So there is no direct cash involvement in the plant. When a bank gives factoring, the factoring in most of the case will be nullified by receipts. This is the whole way how this cash flow from head office to the plant to the finished product to the receipt.