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MMeetthhooddss ooff MMaannaaggiinngg
DDiissbbuurrsseemmeennttss
PPaayyrroollll aanndd DDiivviiddeenndd DDiissbbuurrsseemmeennttss
The firm attempts to determine when payroll and
dividend checks will be presented for collection.
MMaannyy ttiimmeess aa sseeppaarraattee aaccccoouunntt iiss sseett uupp ttoo
hhaannddllee eeaacchh ooff tthheessee ttyyppeess ooff ddiissbbuurrsseemmeennttss..
AA ddiissttrriibbuuttiioonn sscchheedduulleedd iiss pprroojjeecctteedd bbaasseedd oonn
ppaasstt eexxppeerriieenncceess.. [[SSeeee sslliiddee 99--2222]]
FFuunnddss aarree ddeeppoossiitteedd bbaasseedd oonn eexxppeecctteedd nneeeeddss..
MMiinniimmiizzeess eexxcceessssiivvee ccaasshh bbaallaanncceess..](https://image.slidesharecdn.com/cashandmarketablesecurities-141016133811-conversion-gate02/75/Cash-and-marketable-securities-21-2048.jpg)
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Cash and marketable securities
- 1. 1 CChhaapptteerr 99 CCaasshh aanndd MMaarrkkeettaabbllee SSeeccuurriittiieess MMaannaaggeemmeenntt
- 2. 2 CCaasshh aannddMMaarrkkeettaabbllee SSeeccuurriittiieess MMaannaaggeemmeenntt Motives for Holding Cash Speeding Up Cash Receipts S-l-o-w-i-n-g D-o-w-n Cash Payouts Cash Balances to Maintain Investment in Marketable Securities
- 3. 3 MMoottiivveess ffoorrHHoollddiinngg CCaasshh TTrraannssaaccttiioonnss MMoottiivvee -- to meet payments arising in the ordinary course of business SSppeeccuullaattiivvee MMoottiivvee -- to take advantage of temporary opportunities PPrreeccaauuttiioonnaarryy MMoottiivvee -- to maintain a cushion or buffer to meet unexpected cash needs
- 4. 4 SSppeeeeddiinngg UUpp CCaasshh RReecceeiippttss Collections Expedite preparing and mailing the invoice Accelerate the mailing of payments from customers Reduce the time during which payments received by the firm remain uncollected
- 5. 5 CCoolllleeccttiioonn FFllooaatt PPrroocceessssiinngg FFllooaatt AAvvaaiillaabbiilliittyy FFllooaatt CCoolllleeccttiioonn FFllooaatt: total time between the mailing of the check by the customer and the availability of cash to the receiving firm. MMaaiill FFllooaatt DDeeppoossiitt FFllooaatt
- 6. 6 MMaaiill FFllooaatt CCuussttoommeerr mmaaiillss cchheecckk FFiirrmm rreecceeiivveess cchheecckk MMaaiill FFllooaatt: time the check is in the mail.
- 7. 7 PPrroocceessssiinngg FFllooaatt FFiirrmm ddeeppoossiittss cchheecckk FFiirrmm rreecceeiivveess cchheecckk PPrroocceessssiinngg FFllooaatt: time it takes a company to process the check internally.
- 8. 8 AAvvaaiillaabbiilliittyy FFllooaatt FFiirrmm ddeeppoossiittss cchheecckk FFiirrmm’’ss bbaannkk aaccccoouunntt ccrreeddiitteedd AAvvaaiillaabbiilliittyy FFllooaatt: time consumed in clearing the check through the banking system.
- 9. 9 DDeeppoossiitt FFllooaatt PPrroocceessssiinngg FFllooaatt AAvvaaiillaabbiilliittyy FFllooaatt DDeeppoossiitt FFllooaatt: time during which the check received by the firm remains uncollected funds.
- 10. 10 EEaarrlliieerr BBiilllliinngg Accelerate preparation and mailing of invoices computerized billing invoices included with shipment invoices are faxed advance payment requests preauthorized debits
- 11. 11 PPrreeaauutthhoorriizzeedd PPaayymmeennttss PPrreeaauutthhoorriizzeedd ddeebbiitt The transfer of funds from a payor’s bank account on a specified date to the payee’s bank account; the transfer is initiated by the payee with the payor’s advance authorization.
- 12. 12 LLoocckkbbooxx SSyysstteemmss TTrraaddiittiioonnaall LLoocckkbbooxx A post office box maintained by a firm’s bank that is used as a receiving point for customer remittances. EElleeccttrroonniicc LLoocckkbbooxx A collection service provided by a firm’s bank that receives electronic payments and accompanying remittance data and communicates this information to the company in a specified format.
- 13. 13 LLoocckkbbooxx PPrroocceessss** Customers are instructed to mail their remittances to the lockbox location. Bank picks up remittances several times daily from the lockbox. Bank deposits remittances in the customers account and provides a deposit slip with a list of payments. Company receives the list and any additional mailed items. * Based on the traditional lockbox system
- 14. 14 LLoocckkbbooxx SSyysstteemm AAddvvaannttaaggee Receive remittances sooner which reduces processing float. DDiissaaddvvaannttaaggee Cost of creating and maintaining a lockbox system. Generally, not advantageous for small remittances.
- 15. 15 CCoonncceennttrraattiioonn BBaannkkiinngg CCaasshh CCoonncceennttrraattiioonn The movement of cash from lockbox or field banks into the firm’s central cash pool residing in a concentration bank. CCoommppeennssaattiinngg BBaallaannccee Demand deposits maintained by a firm to compensate a bank for services provided, credit lines, or loans.
- 16. 16 CCoonncceennttrraattiioonn BBaannkkiinngg MMoovviinngg ccaasshh bbaallaanncceess ttoo aa cceennttrraall llooccaattiioonn:: Improves control over inflows and outflows of corporate cash. Reduces idle cash balances to a minimum. Allows for more effective investments by pooling excess cash balances.
- 17. 17 SS--ll--oo--ww--ii--nn--gg DD--oo--ww--nn CCaasshh PPaayyoouuttss “Playing the Float” Control of Disbursements Payable through Draft (PTD) Payroll and Dividend Disbursements Zero Balance Account (ZBA)
- 18. 18 ““PPllaayyiinngg tthheeFFllooaatt”” NNeett FFllooaatt -- The dollar difference between the balance shown in a firm’s (or individual’s) checkbook balance and the balance on the bank’s books. You write a check today, which is subtracted from your calculation of the account balance. The check has not cleared, which creates float. You can potentially earn interest on money that you have “spent.”
- 19. 19 CCoonnttrrooll ooffDDiissbbuurrsseemmeennttss FFiirrmmss sshhoouulldd bbee aabbllee ttoo:: 1. shift funds quickly to banks from which disbursements are made. 2. generate daily detailed information on balances, receipts, and disbursements. SSoolluuttiioonn:: Centralize payables into a single (smaller number of) account(s). This provides better control of the disbursement process.
- 20. 20 MMeetthhooddss ooffMMaannaaggiinngg DDiissbbuurrsseemmeennttss PPaayyaabbllee TThhrroouugghh DDrraafftt ((PPTTDD)):: A check-like instrument that is drawn against the payor and not against a bank as is a check. After a PTD is presented to a bank, the payor gets to decide whether to honor or refuse payment. DDeellaayyss tthhee ttiimmee ttoo hhaavvee ffuunnddss oonn ddeeppoossiitt ttoo ccoovveerr tthhee ddrraafftt.. SSoommee ssuupppplliieerrss pprreeffeerr cchheecckkss.. BBaannkkss wwiillll iimmppoossee aa hhiigghheerr sseerrvviiccee cchhaarrggee dduuee ttoo tthhee aaddddiittiioonnaall hhaannddlliinngg iinnvvoollvveedd..
- 21. 21 MMeetthhooddss ooffMMaannaaggiinngg DDiissbbuurrsseemmeennttss PPaayyrroollll aanndd DDiivviiddeenndd DDiissbbuurrsseemmeennttss The firm attempts to determine when payroll and dividend checks will be presented for collection. MMaannyy ttiimmeess aa sseeppaarraattee aaccccoouunntt iiss sseett uupp ttoo hhaannddllee eeaacchh ooff tthheessee ttyyppeess ooff ddiissbbuurrsseemmeennttss.. AA ddiissttrriibbuuttiioonn sscchheedduulleedd iiss pprroojjeecctteedd bbaasseedd oonn ppaasstt eexxppeerriieenncceess.. [[SSeeee sslliiddee 99--2222]] FFuunnddss aarree ddeeppoossiitteedd bbaasseedd oonn eexxppeecctteedd nneeeeddss.. MMiinniimmiizzeess eexxcceessssiivvee ccaasshh bbaallaanncceess..
- 22. 22 PPeerrcceennttaaggee ooffPPaayyrroollll CChheecckkss CCoolllleecctteedd 100% 75% 50% 25% 0% (Payday) Percent of F M T W H F M and after PPaayyrroollll CCoolllleecctteedd The firm may plan on payroll checks being presented in a similar pattern every pay period.
- 23. 23 MMeetthhooddss ooffMMaannaaggiinngg DDiissbbuurrsseemmeennttss ZZeerroo BBaallaannccee AAccccoouunntt ((ZZBBAA)):: A corporate checking account in which a zero balance is maintained. The account requires a master (parent) account from which funds are drawn to cover negative balances or to which excess balances are sent. EElliimmiinnaatteess tthhee nneeeedd ttoo aaccccuurraatteellyy eessttiimmaattee eeaacchh ddiissbbuurrsseemmeenntt aaccccoouunntt.. OOnnllyy nneeeedd ttoo ffoorreeccaasstt oovveerraallll ccaasshh nneeeeddss..
- 24. 24 CCaasshh BBaallaanncceessttoo MMaaiinnttaaiinn TThhee ooppttiimmaall lleevveell ooff ccaasshh sshhoouulldd bbee tthhee llaarrggeerr ooff:: (1) the transaction balances required when cash management is efficient. (2) the compensating balance requirements of commercial banks.
- 25. 25 IInnvveessttmmeenntt iinn MMaarrkkeettaabbllee SSeeccuurriittiieess MMaarrkkeettaabbllee SSeeccuurriittiieess aarree sshhoowwnn oonn tthhee bbaallaannccee sshheeeett aass:: 11.. CCaasshh eeqquuiivvaalleennttss iiff mmaattuurriittiieess aarree lleessss tthhaann tthhrreeee ((33)) mmoonntthhss aatt tthhee ttiimmee ooff aaccqquuiissiittiioonn.. 22.. SShhoorrtt--tteerrmm iinnvveessttmmeennttss iiff rreemmaaiinniinngg mmaattuurriittiieess aarree lleessss tthhaann oonnee ((11)) yyeeaarr..
- 26. 26 VVaarriiaabblleess iinnMMaarrkkeettaabbllee SSeeccuurriittiieess SSeelleeccttiioonn SSaaffeettyy Refers to the likelihood of getting back the same number of dollars you originally invested (principal). MMaarrkkeettaabbiilliittyy ((oorr LLiiqquuiiddiittyy)) The ability to sell a significant volume of securities in a short period of time in the secondary market without significant price concession.
- 27. 27 VVaarriiaabblleess iinnMMaarrkkeettaabbllee SSeeccuurriittiieess SSeelleeccttiioonn IInntteerreesstt RRaattee ((oorr YYiieelldd)) RRiisskk The variability in the market price of a security caused by changes in interest rates. MMaattuurriittyy Refers to the remaining life of the security.
- 28. 28 CCoommmmoonn MMoonneeyy MMaarrkkeett IInnssttrruummeennttss MMoonneeyy MMaarrkkeett IInnssttrruummeennttss All government securities and short-term corporate obligations. (Broadly defined) TTrreeaassuurryy BBiillllss ((TT--bbiillllss)):: Short-term, non-interest bearing obligations issued at a discount and redeemed at maturity for full face value. Minimum $1,000 amount.
- 29. 29 CCoommmmoonn MMoonneeyy MMaarrkkeett IInnssttrruummeennttss TTrreeaassuurryy NNootteess:: Medium-term (2-10 years’ original maturity) obligations of the U.S. Treasury. TTrreeaassuurryy BBoonnddss:: Long-term (more than 10 years’ original maturity) obligations of the U.S. Treasury.
- 30. 30 CCoommmmoonn MMoonneeyy MMaarrkkeett IInnssttrruummeennttss RReeppuurrcchhaassee AAggrreeeemmeennttss ((RRPPss;; rreeppooss)):: Agreements to buy securities (usually Treasury bills) and resell them at a higher price at a later date. BBaannkkeerrss’’ AAcccceeppttaanncceess ((BBAAss)):: Short-term promissory trade notes for which a bank (by having “accepted” them) promises to pay the holder the face amount at maturity.