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Cash Management - An Insight
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Cash Management - An Insight

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Traditionally, businesses have believed that …

Traditionally, businesses have believed that
profits indicate success. While it is true that
profits are one of the key indicators of success, many are now starting to realize that there is something more fundamental to their very survival; and that is ‘cash’. ‘Cash is King’- And this holds true for every business irrespective
of its size. The availability of cash balances is a key determinant of a company’s competitive ability, because it provides the means to invest in people, technology, and other assets. Efficient Cash Management is therefore indispensable.

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  • 1. Cash Management- An InsightUniversal Banking Solution System Integration Consulting Business Process Outsourcing
  • 2. Traditionally, businesses have believed that Why Cash Management?profits indicate success. While it is true thatprofits are one of the key indicators of success, Lack of control over cash flows and inefficientmany are now starting to realize that there is cash management can be very harmful tosomething more fundamental to their very business. More often than not, it is the impropersurvival; and that is ‘cash’. ‘Cash is King’- And management of cash that has caused businessesthis holds true for every business irrespective to fail. Effective cash management is therefore aof its size. The availability of cash balances is a necessity for businesses.key determinant of a company’s competitiveability, because it provides the means to invest in Companies heavily rely on knowing their cashpeople, technology, and other assets. Efficient position to manage working capital requirementsCash Management is therefore indispensable. such as ordering inventory, raw material, or acquisitions/expansion program, for whichWhat is Cash Management? they need a clear idea of how much cash is required, and when. This is enabled by efficientCash Management comprises of a series of cash management.activities aimed at efficiently handling the inflowand outflow of cash. This mainly involves Moreover, a company’s cash position is said todiverting cash from where it is to where it is be a better indicator of the health of itsneeded. In other words, cash management is the business, rather than its profit and loss statement.optimization of cash flows, balances and short- Hence knowing the cash position is crucial forterm investments. every business to:‘Cash’ in this context, may refer either to cash in • forecast when, how, and where cash needsthe form of currency, or to other equivalents such may ariseas cheques, drafts, deposits, among others.While organizations may hold other assets • determine which would be the best sourcewhich can potentially be converted to cash, for additional cash needs, andcash management essentially deals with the • be prepared to meet cash needs whenmanagement of liquid cash and near-cash assets they arisesuch as marketable securities and time deposits,which can be readily converted to cash. The And for better visibility into the cash positionprimary feature of such cash balance is that it across banks, across borders, cash managementhas no earning power. Nonetheless, it is crucial is crucial. It empowers businesses with the abilityto organizations for three main reasons: to forecast cash flows, plan future business1. Transaction: Ready cash balances are vital strategies, and manage cash accordingly. for routine transactions including purchases, Components of Cash Management operating expenses, wages, and other payments such as dividends, taxes and so on. Businesses commonly face issues with slow2. Precaution: There may be unanticipated movement of funds, long-drawn reconciliation cash requirements as a result of sudden processes, locked working capital, and loss of increase in inventory costs, delay in float income. Hence there are certain fundamental collection of receivables, among others. And requirements for efficient cash management, maintaining ready cash balances is essential including control over receivables and payables, to deal with such unforeseen expenses. visibility on cash positions, among others. And to address these needs of corporate customers,3. Speculation: Reserving cash balances is banks widely offer cash management services also crucial when firms anticipate decline in comprising the following: prices of raw materials, reduction in interest rates for buying securities, availing early 1. Account Reconciliation: Managing payment discounts, among others. cheques, monitoring their clearance, and Cash Management- An Insight
  • 3. keeping track of the true cash balance can expecting solutions around standardization, be an overwhelming task for businesses reconciliation, integrated banking systems with because of the huge number of cheques that corporate systems, and real-time reporting for are processed on a daily basis. Hence overall view of the existing cash position. And banks offer account reconcilement services the current trends in cash management wherein corporate customers can upload emerge from banks catering to these needs of details about the cheques issued on a daily corporate customers: basis. And at the end of the month, the bank statement shows information on cheques Complete Visibility: Corporate customers which have been cleared and those which increasingly expect superior cash forecasting have not. This system is also helpful in the ability, for which they need complete enterprise process known as ‘positive pay’, used by level visibility into cash balances and movement banks to prevent cheques from being of cash. This is provided by banks in the form of fraudulently cashed if they are not on the list. status reports, direct enquiry, and through consolidated view of accounts held with2. Cash Concentration: This is a quick and branches/banks across the globe. cost-effective method of moving funds from different accounts spread across the country Rich Reporting Modules: In order to make to a single monitored and managed account. corporate customers understand the need to This allows businesses to maximize the use adopt cash management services, banks are of available cash, and to optimize returns on showing cost-benefit analysis reports, and consolidated balances. demonstrating the benefits offered by cash management using graphs and illustrations.3. Financial Risk Management: Risk management is the process of measuring Integrated Services: Corporate customers prefer risk, and developing and implementing a single platform for all their financial needs in strategies to manage and mitigate risk. place of disparate systems. Hence the focus is Financial risk management plays an important on integrating cash management systems with role in cash management, because it focuses other activities involving the bank. For example, on managing risks in relation to changes in linking of ERP solutions with banking systems interest rates, commodity prices, stock prices, facilitates cash management by enabling exchange rates, among others. effective trade finance process and investment management, among others.4. Liquidity Management: Forecasting the cash needs of a business is essential for Remote Deposit Capture and Straight-Through managing cash flows, short-term borrowings, Processing (STP): In order to accelerate among others. in an efficient manner, in transactions businesses are looking for solutions order to ensure that such cash needs can that offer straight through processing capability. be met if and when they arise. This For example, corporate customers are trying requirement is addressed through liquidity to streamline their transactions and reduce management services offered by banks. downtime, for which banks offer STP services Liquidity management comprises of activities which enable businesses to conduct entire trade that release the investments locked in processes and payments electronically. working capital, enabling it to contribute to higher profits. It also refers to the specific And to better serve the needs of corporate services provided by banks to enable their customers, banks look to technology vendors customers optimize their interest revenues who offer optimal solutions that can enable more and reduce interest costs. efficient cash management.Cash Management: Corporate Expectations and The Role of Technology in Optimizing CashConsequent Trends ManagementWith growing recognition of the need to adopt Cash management solutions are not new. Thecash management strategies, companies are market is mature and many banks offer efficient Cash Management- An Insight
  • 4. cash management solutions. But market forces, Eliminating Disparate Systems: Different casheconomic conditions, and changing corporate management solutions are being offered fortrends have generated opportunities for further diverse segments. And as businesses grow,innovations in this space. managing these disparate systems is increasingly becoming a challenge. Hence vendors shouldAlthough traditionally a large number of these come up with a single platform which cansolutions have been windows-based, with many support various cash management products andcorporate customers embracing internet banking, services as the business grows.several banks are now migrating to browser-based solutions. Technology has been the driving Customizable Solutions: Banks today offerforce in optimizing cash management solutions similar solutions to all corporate customersfor corporate customers: irrespective of their size and business. Hence vendors should try to come up with a• Browser-based solutions facilitate customizable platform which can cater to the centralization of cash management thereby specific needs of different businesses. enabling better accessibility by users across the organization thereby having a better Unified System: Integration of corporate control of cash flows customer systems with banking systems can be very helpful in reconciliation of internal systems• Online banking and STP help quicken with banking systems, and can support account payments, thereby accelerating business management between the bank and customer. and streamlining processes by eliminating And this offers great scope for vendors. redundant manual processes Today, banks are leveraging cash management• 360 degree view of accounts offers greater systems as a tool to build long-term trust with visibility on cash position thereby improving corporate customers, because these systems the forecasting ability. will empower bank’s customers to be empowered and manage their liquidity position at any givenAll these facilities help businesses optimize cash time, thus building a trust and strengthening themanagement and consequently help improve their relationship that goes beyond transaction banking.cash position.Scope for ImprovementCash management solutions are now widely Authorbeing adopted, and hence there is likely Sai Kumar Jayantyto be an increase in the number of vendors Finacle Product Strategyoffering these solutions. Correspondingly,corporate customers are also likely to become Infosys Technologies Limitedmore demanding, thereby promoting moreintense competition amongst vendors. Here are Anuradha Mallyasome areas with scope for improvement which Finacle Product Strategyvendors can focus on, to provide better services Infosys Technologies Limitedthan their competitors: Cash Management- An Insight

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