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Optimizing Company Cash: A Guide For Financial Professionals

Optimizing Company Cash: A Guide For Financial Professionals

  • Author:
  • Publisher: John Wiley & Sons
  • ISBN: 9780870516542
  • Published In: February 2018
  • Format: Paperback , 296 pages
  • Jurisdiction: International ? Disclaimer:
    Countri(es) stated herein are used as reference only

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  • Description 
  • Contents 
  • Author 
  • Details

    Optimizing Company Cash provides a comprehensive guide to all elements of cash management in a business including:

    • Inflows
    • Outflows
    • Cash conversion cycles
    • Short-term borrowing and investing
    • International business
    • How to structure a corporate treasury function

    In over 200 pages, the Guide explains how CPAs and financial managers can manage their company's short-term resources to sustain ongoing activities, mobilize funds and optimize liquidity. It also provides diagrams of work flows, step-by-step checklists, templates, and treasury tips for CPAs and finance managers who are responsible for making the most of working capital and short-term resources.

  • List of Exhibits xvii

    Foreword xxi

    Acknowledgments xxiii

    Chapter 1 A Cash Manager’s Perspective on Company Financials 1

    Chapter Goals 1

    Introduction 1

    Interrelationship of the Operating, Cash, and Accounting Cycles 2

    Important Metrics 3

    Liquidity Ratios 3

    Leverage Ratios 5

    Capital Structure—Weighted Average Cost of Capital 5

    Performance Measures 6

    Efficiency Ratios 6

    Risk-Adjusted Performance Measures 6

    Risk Management 9

    Worked Examples of Company Metrics 9

    Practical Applications 11

    Summary of Key Points 12

    Chapter 2 It’s All About the Bottom Line! 13

    Chapter Goals 13

    Introduction 13

    The Major Functions of Cash Management 14

    Factors That Influence the Cash Manager’s Role 16

    A Representative Organization Chart 16

    Important Cash Management Concepts 17

    Cash Flow Timeline 17

    Financial Float 18

    Availability 18

    Finality 19

    Opportunity Cost of Funds 20

    Transaction Balances 20

    Time Value of Money 20

    Nature of Cash Flows 22

    Practical Applications 22

    Summary of Key Points 22

    Chapter 3 Optimizing Liquidity 23

    Chapter Goals 23

    Introduction 23

    Liquidity Management 23

    Cash Is King 24

    Float in the Financial Supply Chain 24

    Sources and Uses of Liquidity 26

    Optimizing Working Capital 26

    Cash Conversion Cycle 27

    Calculating How Much Liquidity a Company Needs 28

    Costs of Too Little Liquidity 28

    Working Capital Gap Management 29

    Practical Applications 30

    Summary of Key Points 30

    Chapter 4 The United States Banking System 31

    Chapter Goals 31

    Introduction 31

    Structure of the United States Banking System 31

    Federal Reserve Bank 32

    A Dual Banking System 32

    Major Banking Legislation 33

    Impact of Current Legislation 33

    Nationwide Branching 33

    Patriot Act 34

    Sarbanes-Oxley Act 34

    Check 21 35

    Federal Reserve Regulations 35

    Uniform Commercial Code 36

    Practical Applications 37

    Summary of Key Points 37

    Chapter 5 Types of Payment Instruments 43

    Chapter Goals 43

    Introduction 44

    Important Terminology 44

    Clearing 44

    Settlement 44

    Real-Time Gross Settlement 44

    Net Settlement Systems 44

    Settlement Risk 45

    Contents ix

    Hybrid Settlement 45

    Transaction Types 45

    Payment Practices in the United States 45

    Check Payments 47

    Check Terminology 47

    Characteristics of a Check 48

    The Real Cost of Paying by Check 49

    The Truth About Disbursement Float 50

    The Check Clearing Process 50

    Advantages and Disadvantages of Using Checks 54

    Electronic Checks and the Role of Imaging and Truncation 54

    Electronic Payments 55

    The Fedwire Process 55

    The Clearing House Interbank Payment System 56

    The Automated Clearing House 58

    Other Payment Types 61

    Cash 61

    Plastic: Charge, Credit, Debit, and P-Cards 61

    Selection and Comparison of Payment Types 62

    Practical Applications 63

    Summary of Key Points 63

    Chapter 6 Optimizing Cash Inflows—Part 1: Accounts Receivable 65

    Chapter Goals 65

    Introduction 65

    Cash Inflow Float 65

    Establishing a Credit Policy 66

    The Five C’s of Credit Evaluation 67

    Sources of Credit Information 67

    The Credit Scoring Model 67

    Terms of Sale 68

    Terms of Sales 69

    Discount Terms 69

    Invoicing 70

    The Accounts Receivable Process 71

    Checklist for Automating Accounts Receivables Processing 72

    Monitoring Accounts Receivable 73

    How to Improve Accounts Receivable 74

    Practical Applications 74

    Summary of Key Points 75

    Chapter 7 Optimizing Cash Inflows—Part 2: Collections 77

    Chapter Goals 77

    Introduction 77

    Collection Float 78

    Objectives of a Collection System 79

    Explaining Funds Availability 79

    Managing Collection Float 80

    Types of Lockboxes 81

    Lockbox Networks 81

    How to Perform the Cost-Benefit Analysis of a Lockbox 82

    Elements of Lockbox Pricing 83

    Cost Comparison of Collection Methods 84

    Recent Trends and Changes in Collections 85

    Expansion of Bank Networks 85

    Impact of Check 21 88

    Remote Deposit Capture 88

    Rise of the Automated Clearing House 88

    Improvements in Imaging 88

    Use of the Internet 88

    Integrated Receivables 88

    Cash Management Tips for More Efficient Collections 89

    Practical Applications 90

    Summary of Key Points 90

    Chapter 8 Optimizing Cash Inflows—Part 3: Concentration 91

    Chapter Goals 91

    Introduction 91

    Concentration Float 92

    Objectives of a Concentration System 92

    Optimizing Liquidity 92

    Information Float 93

    Transfer Float 94

    Making Concentration More Efficient 95

    When to Use an Electronic Depository Transfer or a Wire 95

    Using Appropriate Formats 96

    Frequency of Transfers 96

    Target Balances 96

    Anticipating Deposits and Availability 96

    Costs of Concentration 97

    Optimizing Concentration 97

    Practical Applications 99

    Summary of Key Points 99

    Chapter 9 Optimizing Cash Outflows 101

    Chapter Goals 101

    Introduction 102

    Cash Outflow Float 102

    Objectives of a Disbursement System 102

    Considerations When Designing a Disbursement System 103

    Specialized Disbursement Vehicles 103

    Zero Balance Accounts 103

    Controlled Disbursement 104

    Payable Through Drafts 106

    Multiple Drawee Checks 106

    Sight and Time Drafts 106

    Direct Deposit 106

    Payroll Cards 107

    Internet Payments 107

    Comparison of Payment Costs 107

    Considerations in Converting Paper to Electronic Payments 108

    Factors Driving Migration 109

    Barriers to Electronic Payments 109

    Implementation of Electronic Payments 109

    Outsourcing Disbursements 111

    Cash Management Tips for More Efficient Disbursement 112

    Trends in Payment Practices 113

    Practical Applications 113

    Summary of Key Points 113

    Chapter 10 Fraud Prevention and Control 115

    Chapter Goals 115

    Introduction 115

    Where Fraud Occurs 115

    Fraud Detection 116

    Fraud Prevention 117

    What the Banks Are Doing 117

    What the Company Can Do 118

    Purchasing Cards 120

    Securing PCs Physically 120

    Resources 121

    Practical Applications 121

    Summary of Key Points 121

    Chapter 11 Cash Forecasting 123

    Chapter Goals 123

    Introduction 123

    Why Cash Forecasting Is Important 123

    Key Drivers of Cash Forecasting 124

    Sources of Data 125

    Forecasting Methods 126

    Short-Term Forecasts 126

    Medium-Term Forecasts 127

    Long-Term Forecasts 131

    What to Consider When Designing a Forecasting System 132

    Practical Applications 132

    Summary of Key Points 133

    Chapter 12 Short-Term Investing 135

    Chapter Goals 135

    Introduction 135

    Investment Objectives 135

    Developing Investment Policy Guidelines 136

    What the Credit Ratings Mean 137

    Instruments Used for Short-Term Investments 139

    Government Issues 139

    Bank and Broker Vehicles 141

    Corporate Instruments 143

    Risk and Return Comparison 144

    Factors That Influence Investment Yields 145

    Calculating and Comparing Yields 145

    Investment Strategies 147

    Is Outsourcing Right for Your Company? 147

    Investment Tips for the Cash Manager 148

    Practical Applications 149

    Summary of Key Points 149

    Chapter 13 Short-Term Borrowing 151

    Chapter Goals 151

    Introduction 151

    Borrowing Objectives 151

    Short-Term Borrowing Options 152

    Short-Term Sources of Funds 152

    Short-Term Borrowing Instruments 153

    Factors that Influence the Cost of Borrowing 155

    What to Look for in a Loan Agreement 158

    Recommendations for Managing Short-Term Debt 159

    Practical Applications 160

    Summary of Key Points 160

    Chapter 14 Doing Business Internationally 161

    Chapter Goals 161

    Introduction 161

    Making International Payments 161

    Paper Payments 163

    Electronic Payments 163

    Receiving Payments from Overseas 165

    Payment by Check 165

    Electronic Payments 166

    What You Need to Know About Foreign Currency Accounts 167

    Managing Foreign Exchange Exposure 169

    FX Risk 169

    FX Risk Management Policy 169

    Developing an FX Hedging Strategy 170

    International Trade Vehicles 172

    Cash in Advance 173

    Letter of Credit (L/C) 173

    Documentary Collection 173

    Counter Trade 173

    Open Account 174

    A Word on Notional Pooling 174

    Improving International Payments 175

    Practical Applications 176

    Summary of Key Points 176

    Chapter 15 Using Technology to Manage Treasury 177

    Chapter Goals 177

    Introduction 177

    The Treasury Management System 178

    Information Reporting 179

    Internal Information 179

    External Information 180

    Transaction Initiation 182

    Advanced and Specialized Modules 183

    Options in Selecting a Treasury Management System 184

    Type of System 184

    Access Method 185

    Internet-Based Systems 185

    How to Select a Treasury System Vendor 186

    Conduct a Vendor Search 186

    Prepare Vendor Short List 187

    The RFP Process 188

    Preparing an RFP 188

    Select a Vendor 189

    Finalize the Details 190

    A Word on Standardization 191

    Practical Applications 191

    Summary of Key Points 192

    Chapter 16 Optimizing Banking Relationships 193

    Chapter Goals 193

    Introduction 193

    Objectives of Bank Relationship Management 193

    How Many Banks Are Enough? 194

    Types of Banking Relationships 194

    Standards for Evaluating Performance 195

    Why Have a Service Level Agreement?  196

    Key Items to Include in an SLA 196

    Account Analysis 198

    Reading the Account Analysis Statement 199

    What to Check on the Account Analysis 201

    Bank Compensation Practices 201

    Negotiating Bank Fees 202

    Practical Applications 203

    Summary of Key Points 203

    Chapter 17 The Bank Selection Process 205

    Chapter Goals 205

    Introduction 205

    Selection of a Financial Services Provider 205

    The RFP Process—Step 1: Prepare the RFP 206

    Format of the RFP 206

    Critical Selection Criteria 207

    Sample RFP Questions 209

    The RFP Process—Step 2: Analyze the Responses 211

    Methodology for Evaluating Responses 211

    The RFP Process—Step 3: The Presentation 211

    The RFP Process—Other Considerations 213

    Should You Use a Consultant? 213

    How to Use an RFP Template 213

    Pricing 213

    Practical Applications 214

    Summary of Key Points 214

    Chapter 18 The Treasury Structure 215

    Chapter Goals 215

    Introduction 215

    Organizational Design 216

    Centralized Versus Decentralized Treasury Organization 217

    Corporate Governance and Internal Control 220

    Drafting Treasury Policy and Procedures 220

    Roles and Responsibilities 222

    Authority Limits 223

    Management Reporting 224

    Key Treasury Controls 225

    Measurement and Management 226

    Code of Conduct for Treasury 226

    Treasury Audit 227

    Performing a Review of the Treasury Function 228

    Practical Applications 228

    Summary of Key Points 230

    Chapter 19 Outsourcing Treasury 231

    Chapter Goals 231

    Introduction 231

    Progressive Centralization of Treasury 231

    Shared Service Center 233

    The In-House Bank 235

    Outsourcing 236

    Why Outsource? 237

    What to Outsource? 238

    The Virtual Treasurer 239

    Selecting an Outsourcing Partner 239

    Drawbacks of Outsourcing 243

    How to Outsource Successfully 243

    Practical Applications 244

    Summary of Key Points 244

    Chapter 20 The Way Forward 245

    Chapter Goals 245

    Introduction 245

    Issues Facing Treasury 245

    Summary of Treasury Best Practices 247

    Company Financial Structure 247

    The Banking Environment 247

    Optimizing Liquidity 247

    Collections and Concentration 248

    Payments 248

    Fraud Prevention 248

    Doing Business Internationally 248

    Banking Structure 249

    Treasury Structure 249

    Technology 249

    Your Role as a Financial Professional 250

    Practical Applications 250

    Summary of Key Points 250

    Appendixes

    Useful Sources of Information 251

    Useful Sources for Online Information 255

    Lockbox Providers 259

    Controlled Disbursement Providers 261

    Sample Ethical Code 263

    Index 265

  • Michele Allman-Ward has worked for a number of the most prominent commercial banks leading cash management and treasury-related businesses for more than 25 years. She now runs her own consulting company, Allman-Ward Associates, Inc., working worldwide with companies, professional associations and banks. She specializes in strategic planning, business development and training, with particular emphasis on international cash and treasury management. She also works closely with both the Association for Financial Professionals (US) and the Association of Corporate Treasurers (UK) in developing and teaching their respective cash management certification programs, the CTP and the Cert ICM. Her previous books are The Essentials of Managing Corporate Cash (Wiley) and U.S. Cash Management: A Guide for the European Treasurer (Treasury Today Publications).

    Peter Allman-Ward has worked with leading investment banks in a financial management capacity, most recently as Chief Financial Officer of Wedbush.

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