Cash

Management
Prepared By:
Tasneema Khan
Assistant Professor
Department of Banking and Insurance
University of Dhaka
Overview
 What is Cash Management?
 Role of Treasury in Cash Management
 Cash Forecasting
 Designing Cash Flow Forecast
 Foreign Currency Cash Forecasts
 Cash Receipts and Disbursement
 Cheque: Positive pay, Cheque Truncation, Payee
match, Float.
What is Cash Management?
 Cash management is the forecasting, control, and
stewardship of an organization’s financial assets,
protecting them from fraud, error or loss.
 Cash management is a critical component of
liquidity management.
Role of Treasury in Cash Management
 Accurately forecasting timing and amount of cash
flows.
 Controlling disbursement and speeding collection of
cash
 Protecting cash from fraud, error and loss
 Arranging funding to cover temporary and longer-
term cash shortfalls
 Investing excess cash with a focus on minimizing
risk, maximizing return and ensuring liquidity
Cash Forecasting
 Cash management starts with cash forecasting
 Cash forecasting is a key service provided by
treasury.
 Liquidity management and accuracy of cash
forecasts are considered the most valuable
contribution that treasury makes to an
organization.
 Forecasting accuracy is important because numerous
financial decisions are based on cash forecast.
 The format and level of detail required in a cash forecast
depends to a great degree on the user of the forecast.
 A senior manager or project leader may require only
summary data by week, by month, or by quarter.
 A money market trader who is investing the corporate cash
portfolio may require more detail and on daily basis.
In most cash forecast, cash inflows are segregated from cash
outflows.
Designing Cash Flow Forecast
There are several considerations when designing or improving a cash flow
forecast. These questions are useful in determining an approach to
forecasting:

 Who are the intended users of forecast?

 How much detail and what kind of horizon do the forecast user require?
 How often will the forecast be updated?
 How will the forecast users know that the cash forecast has been updated
and is completed?
 Where will the data for the cash flow forecast come from?
 Can the cash flow forecast be integrated with other systems to support
downloading of forecasted data?
 Can the cash flow forecast be reformatted for different users?
 Can the cash flow forecast use historical data?
 Can the forecast be maintained by a backup employee?
 Will the cash flow forecast include foreign currencies that have cash flows?
Foreign Currency Cash Forecasts
 Organizations with foreign currency cash flows may find that
maintaining cash forecasts for each currency can assist in
identifying currency exposures and timing gaps where funding
or investing may be necessary.
 It helps the user to view the forecast by currency or from a
consolidated cash flow view.
 When cash flows are consolidated, a conversion are is used to
convert all currencies to a common currency.
 The forecast format should enable the user to easily determine
a balance for each currency in which there are cash flows and
determine whether there is deficit or excess of each currency
over time.
Cash Receipts and Disbursement
Both cash receipts and payments involve payments.

Common payment method includes:

 Cheque
 ACH
 Electronic payments
 Cheque
One of the popular methods of payments. It has many
advantages: widely accepted, cheap, convenient, few fees or
charges

Cheque can be cleared through on of the following major

methods:

1. Cheque clearing directly between individual banks (known

as direct send).
2. Cheque clearing that involves cheque both written on and
deposited to accounts with the same bank (known as on-us)
3. Cheque clearing through clearing house.
Organizations using cheques should ensure that they have
strong controls to protect against fraud.

The following methods can be used:

 Electronic payments
 Positive pay
 Payee matching
 Daily reconciliation
 Strong internal control
 Cheque Truncation:
 Check 21
 TECP (Truncation and Electronic Presentment)
Positive Pay
The use of cheque for disbursement create risk through
opportunities for fraud and error.

 Positive pay is a bank service designed to reduce the

opportunities for cheque fraud.

 The issuing company sends a file to the bank with data

on issued check. As checks are presented for clearing ,
they are compared to the items sent to the bank by the
issuer.

 Those that do not match are reported to the issuing

company for decision.
Positive pay is a fraud-prevention system offered by
most commercial banks to companies/customers to
protect them against forged, altered, and counterfeit
checks.

 The company/customer provides a list to the bank of

the check number, amount, and account number of
each check.
 The bank compares the list to the actual checks, flags
any that do not match, and notifies the company.
 The company then tells the bank whether or not to
cash the check.
Payee Match
 Payee match services are also available that permit
matching on payee name as well as amount, date,
and item number
Cheque Truncation
Cheque truncation is a cheque clearance system that
involves the digitalization of a physical paper cheque into
a substitute electronic form for transmission to the paying
bank.

 It permits cheque clearing organizations to forward an

electronic copy of the cheque, rather than the original
paper copy for processing and payment.
 It creates a substitute check that can be used as
evidence and in the audit process.
 Reduces clearing time
 What are the benefits of cheque truncation?
 Efficiency – the time taken for the cheque clearance process is reduced as there is no
need for the physical movement of cheque instruments between the banks.
 Reduced Risk – As there is no physical movement of cheques from one bank to the
other, there is far less risk of items being lost or substituted for any reason.
 Automation – Cheque Truncation enables banks to have enhanced capture,
verification and reconciliation processes.
 Security – Fraud is significantly reduced;
 By the cheque truncation process;
 By an effectively deployed workflow based system

 Most countries implement cheque truncation together with new and modern cheque
standards which assist with fraud elimination.
 Cheque truncation has removed geographic restrictions such as very long distances
and times to move items between locations.
Float
Float is the time that funds spend in transition between
stages in the payment cycle due to typical time delays
between the stages.

 Mail float
 Processing float
 Availability float/Clearing float
 Mail float:
The time that elapses between the mailing of a cheque and
its receipt by the recipient.

 Processing float:
The time between the receipt of a cheque by the recipient
and its deposit into a financial institution.

 Availability float/Clearing float:

The time that elapses from the deposit of a cheque untill the
funds are made available to the cheque recipient.
Forecasting Methods
 Scheduling
 Distribution
 Statistical Analysis