Essentials of Managing Corporate Cash / Edition 1

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* Learn practical, real-world examples and techniques for managing cash
* Optimize cash flows and liquidity management
* Discover the implications of recently enacted financial deregulation laws
* Conduct financial transactions in the global, e-commerce economy
* Develop a partnership approach to bank relationships

Full of valuable tips, techniques, illustrative real-world examples, exhibits, and best practices, this handy and concise paperback will help you stay up to date on the newest thinking, strategies, developments and technologies in managing corporate cash.

MICHELE ALLMAN-WARD is Managing Director of Allman-Ward Associates, Inc., a consulting firm that specializes in strategic planning, product and business unit development, training, project management, and market research with particular emphasis on international treasury management.

JAMES SAGNER is a Principal of Sagner/Marks and has managed over 250 large-scale studies for companies and nonprofit organizations worldwide. He is a regular faculty member in the Kenan-Flagler Business School's "Advanced Topics in Cash Management" program at the University of North Carolina.

The Wiley Essentials Series-because the business world is always changing...and so should you.

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What People Are Saying

From the Publisher
Essentials of Managing Corporate Cash should be required reading for anyone new to the field of Treasury management or requiring a refresher in the fundamentals. The book is comprehensive and easy to read. The authors have done a great job compiling a lot of information in a concise and well-organized fashion. All treasury organizations, and those associated with treasury organizations, will benefit from keeping a copy of this book on hand. —Pamela S. Dempsey, Treasurer, CNA Insurance
Whitman E. Knapp
A valuable addition to the corporate cash management business. The authors have provided a succinct, user-friendly guide to the industry. In an increasingly complex and constantly evolving field, Essentials of Managing Corporate Cash provides a practical and actionable guide for managing or directing a treasury function.
Pamela S. Dempsey
Essentials of Managing Corporate Cash should be required reading for anyone new to the field of Treasury management or requiring a refresher in the fundamentals. The book is comprehensive and easy to read. The authors have done a great job compiling a lot of information in a concise and well-organized fashion. All treasury organizations, and those associated with treasury organizations, will benefit from keeping a copy of this book on hand.
Jan Cloyde
This book provides an excellent tutorial for practicing Cash Managers, but perhaps more important, for Treasurers or Chief Financial Officers having management responsibility for the cash management function without hands-on experience in that function. It is an easy read, covering not only the basics of the various functions, but also providing a historical perspective on how they developed. I can see it as the handy reference guide in treasury departments.
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Product Details

  • ISBN-13: 9780471208754
  • Publisher: Wiley
  • Publication date: 2/21/2003
  • Series: Essentials Series, #56
  • Edition number: 1
  • Pages: 272
  • Product dimensions: 6.10 (w) x 9.10 (h) x 0.70 (d)

Meet the Author

MICHÉLE ALLMAN-WARD, CCM, Cert CM, is Managing Partner of Allman-Ward Associates, Inc., a global consulting firm that specializes in strategic planning and training with particular emphasis on international treasury management. She has worked with major corporate and banking clients worldwide, and is a highly regarded speaker on the subject.

JAMES SAGNER is a Principal of Sagner/Marks and has managed over 250 large-scale studies for companies and nonprofit organizations worldwide. He is a regular faculty member in the Kenan-Flagler Business School’s "Advanced Topics in Cash Management" program at the University of North Carolina and Director of the MBA Program at Albertus Magnus College in Connecticut.

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Read an Excerpt

Essentials of Managing Corporate Cash

By Michèle Allman-Ward James Sagner

John Wiley & Sons

ISBN: 0-471-20875-2

Chapter One

Introduction to Managing Corporate Cash

After reading this chapter, you will be able to

Understand the importance of managing corporate cash and how cash management is instrumental to the ongoing operations of a company

Appreciate why cash managers are needed and the role they play in managing the day-to-day cash position and liquidity of the company

Review the historical evolution of cash management through to the current day Learn the major terms, concepts, and objectives of cash management

This chapter introduces the topics that will be developed more fully throughout the book.

What Is Cash Management?

Cash management is the art-and increasingly the science-of managing a company's short-term resources to sustain its ongoing activities, mobilize funds, and optimize liquidity. The most important elements are:

The efficient utilization of current assets and current liabilities of a firm throughout each phase of the business operating cycle

The systematic planning, monitoring, and management of the company's collections, disbursements, and account balances

The gathering and management of information to use available funds effectively and identify risk

Exhibit 1.1 presents the cash management model and illustrates how the primary cash management functions interrelate.

Cashmanagement comprises at least nine major functions:

1. Accelerating and efficiently collecting cash inflows

2. Concentrating collected funds

3. Controlling the timing of cash outflows

4. Forecasting the cash position

5. Securing adequate sources of short-term funds

6. Optimizing use of any temporary cash surpluses

7. Gathering timely information

8. Implementing the systems and services necessary to monitor, manage, and control the cash position

9. Ensuring the internal and external transfer of financial data

Each of these functions will be discussed in greater detail when reviewing the responsibilities of the cash manager later in this chapter.

The Cash Management Profession

Managing corporate cash effectively is an integral part of a company's success. Advances over the last 50 years have resulted in a cash management discipline that has a significant impact on a company's bottom line and on shareholder value. In the process of this development, the profession has broadened its focus to encompass the functions of the treasurer (as treasury management) and financial management.

The Association for Financial Professionals (AFP) in the United States has more than 14,000 members and provides a source of ongoing professional development through its certification programs, the Certified Cash Manager (CCM) and Certificate in Finance and Treasury Management. A 550-page body of knowledge called "Essentials of Cash Management," now in its seventh edition, supports the CCM program. In addition, there are 62 regional AFP and Treasury Management Associations. The AFP also supports its membership by providing financial tools and publications, career development, continuing education, research, representation to legislators and regulators, and the development of industry standards.

The Association of Corporate Treasurers (ACT) is an international organization with 18 regional groups in the United Kingdom and overseas. The ACT's objective is to encourage and promote the study and practice of corporate treasury management and related subjects. It offers extensive training opportunities and treasury-related publications. The ACT's Certificate in International Cash Management (Cert CM) is offered in locations around the globe.

Technology, too, has been putting tools in the hands of cash managers, and providing solutions for the analysis and management of a company's cash position. Globalization, on the other hand, has added complexity and new challenges, requiring knowledge of the cross-border management of funds and understanding of the implications of tax and risk exposure in the broader international environment.

Historical Perspective

The birth of cash management can be traced back more than half of a century when, in 1947,RCA became one of the first companies to use a lockbox to accelerate collection of payments from dealers. According to the "Global Payments 2000/1 Report" of the Boston Consulting Group, by the year 2008, the worldwide cash management revenue associated with domestic and cross-border payments is estimated to reach almost $310 billion per year.

Prior to the late 1940s, interest rates were low-in March 1948, the three-month U.S. Treasury Bill rate first rose to 1 percent-and there was little incentive to manage cash flows on an active basis. However, when interest rates began to rise in the late 1960s-the three-month Treasury Bill rate was almost 8 percent by the end of the decade-banks developed new investment vehicles to attract funds, such as the negotiable certificate of deposit, and companies began to manage cash more aggressively.

The 1970s saw the wide-spread use of one of the first major technological innovations in cash management: the lockbox model. These computer programs used mail times between cities and bank availability schedules (see Chapter 3) to develop optimal lockbox locations to minimize total collection float.

The 1980s produced a combination of conditions that encouraged the rapid adoption of cash management techniques:

Significant inflation, driven to a large extent by the OPEC oil embargo of 1973-1974

High interest rates, with the prime rate reaching nearly 20 percent by 1980

Financial innovation, including the first products to cross traditional financial services boundaries, such as Merrill Lynch's cash management account (CMA)

Technological advances in electronic banking, including treasury information systems (see Chapter 6) and the introduction of automated teller machines (ATMs)

Financial innovation gave rise to new products and services to meet the needs of the corporate customer, including:

Remote (later, "controlled") disbursement. Exploited the time checks take to clear

Depository Transfer Checks (later ACHs). Permitted the transfer of funds from local collection banks to concentration banks

Automated Clearing House (ACH) transfers. Introduced an electronic payment alternative to wire transfers for low-value, nonurgent transfers

Bank balance reporting. Provided previous day balances and transaction detail electronically

Commercial paper. Offered large companies a less expensive short-term borrowing alternative to traditional bank lending

In the 1980s, the personal computer (PC), which later spawned the treasury workstation (TWS), began the revolution that would transform the role of the cash manager from a gatherer of data to an analyzer and user of information. With the TWS performing the routine data-gathering functions, the liberated cash manager now focuses on interpretation of trends, forecasting, risk management, and the optimization of liquidity.

During the 1990s, technological developments progressed even more rapidly, and deregulation of the banking industry continued. The most significant milestones of this decade were:

The Interstate Banking and Branch Efficiency Act of 1994 effectively replaced the 1927 McFadden Act, permitting banks to branch nationwide by 1997 (see Chapter 8).

The 1933 Glass-Steagall Act was repealed by the passage of the Gramm-Leach-Bliley Act (1999).This legislation deregulated financial services and permitted such mergers as that between Travelers Insurance Company and Citibank, creating the new financial powerhouse, Citigroup (see Chapter 8).

The development of electronic data interchange (EDI), and its successor electronic commerce (EC), began to change the nature of the trade cycle and how business is conducted (see Chapters 2 and 10).

The Economic and Monetary Union (EMU) was launched at the end of the last century, introducing a centralized European Central Bank and a single currency, the euro, for 11 European countries. This significant development promises new and future efficiencies in cross-border liquidity management as harmonization continues to evolve throughout the EMU and as new countries join the union (see Chapter 7).

Technology enabled the centralization of treasury and/or outsourcing of selected functions, such as collections and disbursements, resulting in a more efficient and cost-effective organization.

The trends of the twenty-first century are already emerging. Banks are finding themselves in fierce competition with nonbank providers as suppliers of financial services. At the same time, credit is becoming a scarcer commodity for corporate borrowers, and treasurers are learning to reduce their dependence on cheap short-term loans. The Internet has brought the world to the doorstep of even the smallest company. In addition, the Web is reengineering business processes and the way by which companies assess their core competencies. Cash management is headed for interesting times.

Why Cash Managers Are Needed

The cash manager is responsible for managing the imbalances between a company's cash inflows and cash outflows caused by both the operating cycle and the nature of cash flows. An understanding of both concepts is necessary, in particular how they relate to individual companies and their industry.

The Operating Cycle and the Cash Flow Timeline

For the majority of companies, the operating cycle consists of buying raw materials, converting them into goods and services, and selling the finished goods (see Exhibit 1.2).

The operating cycle, in turn, defines the cash flow timeline, that is, the timing of cash inflows and cash outflows. Exhibit 1.3 illustrates the connection between the operating, cash, trade, and accounting cycles.

The usual pattern is for cash outflows to precede inflows. The purchase of raw materials leads to additional, ongoing expenses associated with the conversion process. A sale does not necessarily result in an immediate cash inflow. A company will need sufficient liquidity to finance the operations until funds are actually collected. Each industry will have its own pattern of cash and operating cycles.

As an example of the preceding, a restaurant buys fresh produce in the morning, transforms the ingredients into meals, which are then sold and paid for during the day. The time between when the cash disbursements are made and the cash is collected is less than a day, that is, the business has an 18-24-hour cash flow cycle.

At the other end of the spectrum, the aircraft industry has a considerably longer operating and cash flow cycle. Years are spent on design and development, and contract negotiations for the purchase of raw materials. This is followed by a protracted manufacturing and testing phase, after which a sale is concluded, usually, on a long-term lease basis.

There are also industries with a reverse cash flow cycle, although these are the exception rather than the rule. For example, in the insurance business, policyholders pay premiums in advance, and claims are paid long after the cash inflow has been received.

The role of the cash manager, in each case, is to ensure that there are sufficient funds for the company to continue in business until the completion of the cash flow cycle. However, each cash manager will perform a very different role, face different challenges, and employ different cash management techniques to assure their company's ongoing operation and liquidity.

Liquidity should not be confused with profitability or net worth. It is possible for a company that is profitable and that has significant assets to go bankrupt from lack of operating (or "working") capital. For example, an airline company can own many valuable assets such as aircraft, landing slots and real estate, but its inability to pay for even one day's fuel can put it out of business.

The Nature of Cash Flows

In managing working capital, the cash manager is challenged by the variable nature of cash flows. Cash flows can be:

Mistimed. Outflows often precede inflows.

Mismatched. Inflows may not entirely cover outflows.

Irregular. Inflows may be uneven. Many seasonal businesses (e.g., retailers and the tourism industry) face extra challenges in managing their cash. Inflows are concentrated during peak months of activity but operating expenses continue throughout the year.

Unpredictable. Cash flows can be difficult to forecast. Bills may be presented earlier than anticipated or the collection of funds may take longer than forecast. The unpredictability factor increases significantly in cross-border business.

The cash manager performs an important role: balancing the company's borrowing and investment activities to maintain the minimum level of liquidity required to sustain the company through the cash cycle.

Positioning the Cash Manager

Although no two companies have identical structures, the cash manager typically reports to the treasurer, who in turn reports to the chief financial officer (CFO) of the company. Exhibit 1.4 shows a representative organization chart.

The CFO is responsible for managing the company's financial position and for quantifying the impact of any capital budgeting or strategic investment decisions being considered. The CFO is usually a member of the senior management team, reporting to the president or chief executive officer (CEO). The major functions that report to the CFO include the treasurer and the comptroller.

The treasurer will typically be responsible for cash management; overseeing bank relationships, including bank borrowing (short and long term), liquidity management, foreign exchange; risk management; corporate finance; and the management of pension assets.

The comptroller manages the budgeting and planning group, the accounting department, (financial reporting, tax reporting, and internal auditing), and the accounts receivable and accounts payable functions.

The division of labor between the treasurer and the comptroller is important, to ensure that adequate controls are maintained between those who record cash to be disbursed and received and those who actually initiate the movement and receipt of funds.


Excerpted from Essentials of Managing Corporate Cash by Michèle Allman-Ward James Sagner Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents


Introduction to Managing Corporate Cash.

Payment Systems.

Managing Cash Inflows.

Managing Cash Outflows.

Liquidity Management.

Treasury Information Systems.

International Cash Management.

United States Banking Environment.

Bank Relationship Management.

Future Trends.

Appendix A: Useful Sources.

Appendix B: NACHA Formats.

Appendix C: SWIFT Message Types.

Suggested Readings.


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  • Posted August 23, 2009

    Money well spent

    The title tells most of the story. Essentials lays out the major case for modern cash management techniques and services in a clear and accurate manner. The examples and helpful illustrations will bring understanding to the novice quickly and help the seasoned pro brush up on an area as they can use this book as a reference resource.

    It appears to be targeted at the cash manager/treasury manager level to be read in its entirety. More senior levels will use this as a reference.

    In 2009 the technology portion is particularly out of date but that is to be expected with tech 6.5 years after publication. There are other changes and developments (SEPA, SWIFT Corporate Access) that would need to be added or enhanced in an update. However, still a worthwhile purchase.

    Was this review helpful? Yes  No   Report this review
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