- Cash management focuses on the short-term analysis of cash flows at account level, with the aim of safeguarding and managing liquidity.
- A complete and accurate information base is essential for ensuring liquidity.
- All incoming and outgoing cash flows should therefore be taken into account using the correct value dates.
- Outgoing cash flows are generally initiated by the company itself and should therefore be known. Outgoing cash flows collected by payment recipients through direct debits can usually also be estimated reliably in terms of both amount and value date. Information on outgoing cash flows can generally be planned effectively and entered into the system at an early stage.
- Incoming payments are difficult for most companies to estimate. In many industries, they depend on customer behaviour, which in turn is influenced by a wide range of factors, such as fashion trends, income, weather, pandemics and trade restrictions.
- The objective of daily cash positioning is to determine account balances for the next few days, usually seven to ten, as accurately as possible. Both insufficient and excessive account balances should be avoided. Once liquidity has been secured, profitability is generally the cash manager’s next most important objective. This means avoiding unnecessary overdraft interest, negative interest, custody fees and transaction costs.
- Starting with accurate opening balances obtained from bank statements, planned incoming and outgoing cash flows help determine future account balances.
- Outgoing cash flows from financial transactions are automatically transferred to the cash forecast in Treasury Management Systems if the transactions have previously been recorded there. Outgoing payments from operating activities and payroll are imported from the accounting system on a regular basis.
- Incoming payments that cannot be predicted precisely in terms of amount and timing can only be estimated. Intraday bank advices, such as SWIFT MT942 or camt.052 messages, can provide information on expected incoming payments and improve the quality of cash positioning.
- To avoid insolvency, bank account balances must be monitored daily, and different balances should be levelled for profitability reasons in order to avoid overdraft and negative interest. Treasury Management Systems such as Trinity TMS provide recommendations for this purpose through account levelling. The balancing of funds between accounts at the same level is referred to as account clearing.
- Balancing across several levels is referred to as cash pooling. For example, the accounts of subsidiaries are supplied with liquidity through a central master account, and their balances are adjusted either to zero through zero balancing or to a defined minimum amount through target balancing.
- A cash management workbench is often used to analyse the development of account balances. It presents liquidity movements graphically and is supplemented by a financial status tailored to the company’s requirements.
- The analysis of balance developments generally covers several days so that timely countermeasures can be taken in the event of projected shortfalls.
- Cash positioning is reviewed on the following day using electronic bank statements, with the recorded transactions compared against the planned cash flows. Based on predefined rules, cash management systems perform this automated bank statement reconciliation quickly and with a high degree of accuracy.
- Cash management often also includes liquidity planning, credit facility and limit management, receivables management and multilateral netting.
- In a broader sense, cash management includes all measures aimed at increasing efficiency and optimising profitability within a company’s financial management. Bank account administration and bank fee control also generally fall within the cash manager’s area of responsibility, while the management of financial transactions and risk management are usually assigned to other members of the treasury department.
- Category-based liquidity planning is generally used for medium- to long-term liquidity management.
