cash management varun 10808154 project on

8/9/2019 Cash Management Varun 10808154 Project On

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CASHMANAGEMENT

submitted to: submitted by:Mr. Manish Kumar varun gautam

Reg. No. 10808154Sec. RR1809A15


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WHAT IS CASH?

In narrow sense: currency and generally acceptedequivalents of cash like cheques, drafts etc.

In broad sense: includes near-cash assets, such asmarketable securities and time deposits in banks. They can be readily sold and converted into cash. Can serve as a reserve pool of liquidity.

Also provide short term investment outlet for excess cash.


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Cash management

Cash management is concerned with the managingof:

cash flows into and out of the firm, cash flows within the firm, and cash balances held by the firm at a point of time by

financing deficit or investing surplus cash


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Four F acets of Cash Management

Cash planning

Managing the cash flows

Optimum cash level Investing surplus cash


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M otives for hold ing cash

Tr ansacti on m otive

P r eca u tiona ry m otive

Spec ul ative m otivecompensating m otive


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Tr ansacti on m otive

H olding of cash to meet routine cash requirementsto finance the transactions which a firm carries on inthe ordinary course of business.


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Precautionary m otive

The cash balances held in reserve for random andunforeseen fluctuations in cash flows.A cushion to meet unexpected contingencies .

Floods, strikes and failure of imp customers Unexpected slowdown in collection of accounts

receivable Sharp increase in cost of raw materials Cancellation of some order of goods

Defensive in nature


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Speculative motive

Is a motive for holding cash/near-cash to quickly takeadvantage of opportunities typically outside thenormal course of business.

Positive and aggressive approachH elps to take advantage of:

An opportunity to purchase raw materials at reduced price Make purchase at favorable prices Delay purchase on anticipation of decline in prices Buying securities when interest rate is expected to decline


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Compensating motive

Is a motive for holding cash/near-cash tocompensate banks for providing certain services orloans.

Clients are supposed to maintain a minimum balanceof cash at the bank which they cannot usethemselves.


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O bjectives of cash managementM eeting pay m ents schedule

It prevents insolvency relationship with bank is not constrained H elps in fostering good relationships Cash discount can be availed Strong credit rating Take advantage of business opportunities Can meet unanticipated cash expenditure with a minimum

of strain.M ini m izing f unds co mm itted to cash balances

H igh level of cash: large funds remain idle Low level of cash: failure to meet payment schedule


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M anaging Cash Collections and Disburse m ents

Accelerating Cash Collections

Controlling Disburse m ents


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1. Decentralised Collections

number of collection centres

Collection centres will collect cheques from customers anddeposit in their local bank accounts

They will deposit the funds to a central bank


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Contd .2 . Lock-box System

Collection centers are established considering the customer locationsand volume of remittances

At each centre the firm hires a post office box Remittances are directly picked from the bank whom the firm gives

the authority

Advantages of lock-box system are cheques are deposited immediately upon receipt of remittances Eliminates the period between the time cheques are received by the

firm and the time they are deposited in the bank for collection


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Controlling Disburse m ents

It means delay the payments as much as possible. Can helpthe firm in conserving cash and reducing the financialrequirements.

Disbursement or Payment Float


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The size of the minimum cash balance depends on :

H ow quickly and cheaply a organization can raise cash whenneeded.

H ow accurately managers can predict cash requirements.Cash budget helps in this .

H ow much precautionary cash the managers need foremergencies.


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The organization s maximum cash balance depends on:

Availability of (short-term) investment opportunities e.g. money market funds, CDs, commercial paper

Expected return on investment opportunities. e.g. If expected returns are high, organizations should be

quick to invest excess cash

Transaction cost of withdrawing cash and making an

investment

Demand for Cash for daily transactions


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Temporary Issues Related to Cash

Management1. Wockh ardt P h arma ce uti c als:Currently using Deutsche Banks DB-Direct (using thin client version).They issue around 600 cheques a week totaling Rs.10 crores.They currently use company cheques and their account gets debited when the cheques hit the

counter. This service is available at non-DB locations also.The cheques are payable at par at correspondent locations and this is known as back endedfunding .The Deutsche Bank product has a multi-currency module.The cutoff time for LCY DD is 11a.m.Customers like the fact that after a transaction is initiated a reference is sent back to the customer.DB does not have multiple delivery modes. O nly option is mail back to customer.DB has an in-house technical team that assists with building the interface, which aids in the

reconciliation process.DB has correspondent bank relationships with Vijaya and State Bank of Patiala.


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2 . In f rastructure Leasing Finance Comp any (Finance):

Citibank does collections while H DFC/State Bank of India handles the dividend warrants.They maintain a lot of surplus cash in their main operating account, as they do notknow when the cheques that they have issued will hit the counter. This is in the casewhen they issue dividend warrants.They would like to get interest on the surplus funds lying in the account.They use ECS to make payments. H DFC currently has 41 branches and they have accessto another 60 locations via Vijaya Bank.Salary payments are done via H SBC. H owever they are facing problems due to the lack

of locations and their staff does not always have access to a branch.They issue around 70000 warrants in April and another 30000 in June.Interest warrants are issued once a year whilst the dividend warrants are paid outaround 3-4 times a year.The customer would like time bound reconciliation so that they know when thecheques are presented and which cheques are outstanding.H DFC do the reconciliation via a floppy, which enables the customer to get a knock off and tell them which transactions are outstanding and what has been presented. Theyalso know when they are going to get the reconciliation diskette.


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They are currently looking for a complete cash management RFP and the 3 banks that have been singled outinclude H DFC/H SBC and Citibank.Main issues are availability of time critical data, ease of reconciliation and cost-effectiveness of solution.Will be ready to transact over the Internet in 2 001. Would like to start using thick client and shift later.Issue around 1100 cheques a month and would like the ability to make cheques payable at par in 8 locationsacross India.Main cities of interest are Baroda/Surat/ Indore. The number of cheques issued out of these cities is around 5-7on a weekly basis.Citibank has made an offer of free of charge cheques and local currency demand drafts to get issued out of Citiand non-Citi locations.Mentioned that other banks in the running are not offering company cheques rather are only offering cashierorders.Need a lot of flexibility, as there are only 2 authorizers in the organization. Do not need a verifier feature.Do not wish to set up limits at their endWould not want authorizer to make amendments.

H ave JD Edwards account payable system.Payment fields to be included in the payment advice include the following: -Purchase numberPaid dateInvoice numberInvoice amount

. Wyeth Lederie Ltd

(Pharmaceutical):


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Contd

RemarksThey have their finance operations centralized out of the Bombay office even though theyhave individual depots making emergency payments.Need payable at par cheques because currently they have to change the stationery based onthe correspondent bank and the location that they have make the payment out to.

Would like to make amendments in the A/P rather than the FES, as that would complicate thereconciliation process.Would like reconciliation to be done on a cheque-by-cheque level. Would like cheque leveldetails.Would like sequential authorization.


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4 . ACC (Ce m ent):

Would like to outsource but are awaiting the installation of an ERP. Given it is a very largecorporate there are a lot of stages of approval and the treasury department cannot expeditethe process unless proper infrastructure is in place.There is some resistance from senior management because there will be redundancy, which

cannot be accounted for, and there will be issues with unions. Also the treasury managerfeels that the savings achieved by outsourcing are intangible and it is difficult to get seniormanagement buy-in.Suggested that we do a consultative approach and assist them in calculating what the costsavings will be so that they can make a presentation to senior management.Currently use continuous stationery to print cheques. This is very cumbersome.Main problems currently being faced are lack of M IS and reconciliation is a problem.Customer spends around 8-1 2 hours daily preparing/printing cheques and would like to

expedite the process .


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N ew initiativ e s

HSBC would like to set up an excellence center in India and would be ha pp y to liase w ith the

vendor to ensure delivera b les and quality o f out put.Centralized BOS engine conce p tually is a very good one but there w ill be huge cost imp lications as band w idth is very ex pensive in India. The reason that the centralized data base would cost a

lot is because the che que i m ages along w ith the signatures have to travel f ro m the server to the b ranch o f transaction to get p rinted in the location o f choice. In order to get away f ro mthis, signatures can be stored at local sites. But in order to have re m ote p rinting, you need

intelligence checking f or signatures f or w hich you would need to attach servers to the p rinters. This again has cost imp lications.

Inter-city trans m ission is ex pected to be enhanced in 2001 m aking re m ote p rinting a technological possi b ility though business would need to think through the p roduct o ff ering due

to cost imp lications. Fire walls and PSDN are in p lace by 2001 p roviding f lexi b ility to custo m ers in ter m s o f using

both the Internet and the m ode m .There is no need to auto m ailers in India and it is chea per to do things m anually. The m ain

p ro b le m o f using the auto- m ailer is that the nearest re pair center is Singa pore m aking it very ex pensive to m aintain.


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Day 0

Courier picks upcheques at location

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Courier depositscheques atdesignated Corbankbranch

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Funds transfer to

our ControlAccount

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CustomersConcentration A/Ccredited

Local clearing siteRBI/SBI

Local clearing at non-branch locations


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Thank You

cash management varun 10808154 project on

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