Cash management

Last updated
Cash management non-financial institutions survey 2016: Which ICMs do you use most globally? [1]
Rank by overall volume, published September 2016
2016 ranking2015 rankingNameScore
11 Flag of the United Kingdom.svg HSBC 11041
22 Flag of the United States.svg Citi 7389
33 Flag of Germany.svg Deutsche Bank 4238
44 Flag of France.svg BNP Paribas 3448
56 Flag of Italy.svg UniCredit 2192
67 Flag of the United Kingdom.svg Standard Chartered 1654
79 Flag of Japan.svg The Bank of Tokyo-Mitsubishi UFJ 1626
85 Flag of the United States.svg Bank of America Merrill Lynch 1475
98 Flag of the United States.svg JPMorgan 1397
1010 Flag of France.svg Société Générale 1217

Cash management refers to a broad area of finance involving the collection, handling, and usage of cash. It involves assessing market liquidity, cash flow, and investments. [2] [3]

Finance academic discipline studying businesses and investments

Finance is a field that is concerned with the allocation (investment) of assets and liabilities over space and time, often under conditions of risk or uncertainty. Finance can also be defined as the art of money management. Participants in the market aim to price assets based on their risk level, fundamental value, and their expected rate of return. Finance can be split into three sub-categories: public finance, corporate finance and personal finance.

Market liquidity markets feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the assets price

In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the asset's price. Liquidity is about how big the trade-off is between the speed of the sale and the price it can be sold for. In a liquid market, the trade-off is mild: selling quickly will not reduce the price much. In a relatively illiquid market, selling it quickly will require cutting its price by some amount. Liquidity can be measured either based on trade volume relative to shares outstanding or based on the bid-ask spread or transactions costs of trading.

Cash flow movement of money into or out of a business, project, or financial product

A cash flow is a real or virtual movement of money:

In banking, cash management, or treasury management, is a marketing term for certain services related to cash flow offered primarily to larger business customers. It may be used to describe all bank accounts (such as checking accounts) provided to businesses of a certain size, but it is more often used to describe specific services such as cash concentration, zero balance accounting, and clearing house facilities. Sometimes, private banking customers are given cash management services.

Bank financial institution

A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords.

Marketing is the study and management of exchange relationships. Marketing is the business process of creating relationships with and satisfying customers. With its focus on the customer, marketing is one of the premier components of business management.

Cash concentration is the transfer of funds from diverse accounts into a central account to improve the efficiency of cash management. The consolidation of cash into a single account allows a company to maintain smaller cash balances overall, and to identify excess cash available for short term investments. The cash available in different bank accounts are pooled into a master account.The advantages of cash concentration are 1) Cash control 2) Cash visibility

Financial instruments involved in cash management include money market funds, treasury bills, and certificates of deposit. [4]

Financial instrument monetary contract between parties

Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity (share), or a contractual right to receive or deliver cash (bond).

A money market fund is an open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper. Money market funds are widely regarded as being as safe as bank deposits yet providing a higher yield. Regulated in the United States under the Investment Company Act of 1940, money market funds are important providers of liquidity to financial intermediaries.

A certificate of deposit (CD) is a time deposit, a financial product commonly sold in the United States and elsewhere by banks, thrift institutions, and credit unions.

Common services

The following is a list of services generally offered by banks and utilized by larger businesses and corporations: [5]

Account reconciliation
Balancing a chequebook can be a difficult process for a very large business, since it issues so many cheques it can take a lot of human monitoring to understand which cheques have not cleared and therefore what the company's true balance is. To address this, banks have developed a system which allows companies to upload a list of all the checks that they issue on a daily basis, so that at the end of the month the bank statement will show not only which checks have cleared, but also which have not. More recently, banks have used this system to prevent checks from being fraudulently cashed if they are not on the list, a process known as positive pay.
Advanced web services
Most banks have an Internet-based system which is more advanced than the one available to consumers. This enables managers to create and authorize special internal logon credentials, allowing employees to send wires and access other cash management features normally not found on the consumer web site.
Armored car services/cash collection
Large retailers who collect a great deal of cash may have the bank pick this cash up via an armored car company, instead of asking its employees to deposit the cash.
Clearing house
Usually offered by the cash management division of a bank. The clearing house is an electronic system used to transfer funds between banks. Companies use this to pay others, especially employees (this is how direct deposit works). Certain companies also use it to collect funds from customers (this is generally how automatic payment plans work). This system is criticized by some consumer advocacy groups, because under this system banks assume that the company initiating the debit is correct until proven otherwise.
Balance reporting
Corporate clients who actively manage their cash balances usually subscribe to secure web-based reporting of their account and transaction information at their lead bank. These sophisticated compilations of banking activity may include balances in foreign currencies, as well as those at other banks. They include information on cash positions as well as 'float' (e.g., checks in the process of collection). Finally, they offer transaction-specific details on all forms of payment activity, including deposits, checks, wire transfers in and out, ACH (automated clearinghouse debits and credits), investments, etc.
Cash concentration services
Large or national chain retailers often are in areas where their primary bank does not have branches. Therefore, they open bank accounts at various local banks in the area. To prevent funds in these accounts from being idle and not earning sufficient interest, many of these companies have an agreement set with their primary bank, whereby their primary bank uses the automated clearing house to electronically "pull" the money from these banks into a single interest-bearing bank account. See also: Cash concentration.
Controlled disbursement
This is another product offered by banks under Cash Management Services. The bank provides a daily report, typically early in the day, that provides the amount of disbursements that will be charged to the customer's account. This early knowledge of daily funds requirement allows the customer to invest any surplus in intraday investment opportunities, typically money market investments. This is different from delayed disbursements, where payments are issued through a remote branch of a bank and customer is able to delay the payment due to increased float time.
Lockbox—wholesale services
Often companies (such as utilities) which receive a large number of payments via checks in the mail have the bank set up a post office box for them, open their mail, and deposit any checks found. This is referred to as a "lockbox" service.
Lockbox—retail services
are for companies with small numbers of payments, sometimes with detailed requirements for processing. This might be a company like a dentist's office or small manufacturing company.
Positive pay
Positive pay is a service whereby the company electronically shares its check register of all written checks with the bank. The bank therefore will only pay checks listed in that register, with exactly the same specifications as listed in the register (amount, payee, serial number, etc.). This system dramatically reduces check fraud.
Reverse positive pay
Reverse positive pay is similar to positive pay, but the process is reversed, with the company, not the bank, maintaining the list of checks issued. When checks are presented for payment and clear through the Federal Reserve System, the Federal Reserve prepares a file of the checks' account numbers, serial numbers, and dollar amounts and sends the file to the bank. In reverse positive pay, the bank sends that file to the company, where the company compares the information to its internal records. The company lets the bank know which checks match its internal information, and the bank pays those items. The bank then researches the checks that do not match, corrects any misreads or encoding errors, and determines if any items are fraudulent. The bank pays only "true" exceptions, that is, those that can be reconciled with the company's files.
Sweep accounts
Sweep accounts are typically offered by the cash management division of a bank. Under this system, excess funds from a company's bank accounts are automatically moved into a money market mutual fund overnight, and then moved back the next morning. This allows them to earn interest overnight. The primary vehicles of sweeps are money market mutual funds and bank deposit products.
Zero balance account
A zero balance account can be thought of as somewhat of a hack. Companies with large numbers of stores or locations can very often be confused if all those stores are depositing into a single bank account. Traditionally, it would be impossible to know which deposits were from which stores without seeking to view images of those deposits. To help correct this problem, banks developed a system where each store is given their own bank account, but all the money deposited into the individual store accounts are automatically moved or swept into the company's main bank account. This allows the company to look at individual statements for each store. U.S. banks are almost all converting their systems so that companies can tell which store made a particular deposit, even if these deposits are all deposited into a single account. Therefore, zero balance accounting is being used less frequently.
Wire transfer
A wire transfer is an electronic transfer of funds. Wire transfers can be done by a simple bank account transfer, or by a transfer of cash at a cash office. Bank wire transfers are often the most expedient method for transferring funds between bank accounts. A bank wire transfer is a message to the receiving bank requesting them to effect payment in accordance with the instructions given. The message also includes settlement instructions. The actual wire transfer itself is virtually instantaneous, requiring no longer for transmission than a telephone call.
Automated cash handling
Automated cash handling is the process of dispensing, counting and tracking cash in a bank, retail, check cashing, payday loan / advance, casino or other business environment through specially designed hardware and software for the purposes of loss prevention, theft deterrence and reducing management time for oversight of cash drawer (till) operations.

In the past, other services have been offered the usefulness of which has diminished with the rise of the Internet. For example, companies could have daily faxes of their most recent transactions or be sent CD-ROMs of images of their cashed checks.

CD-ROM pre-pressed compact disc

A CD-ROM is a pre-pressed optical compact disc that contains data. Computers can read—but not write to or erase—CD-ROMs, i.e. it is a type of read-only memory.

Cash management services can be costly but usually the cost to a company is outweighed by the benefits: cost savings, accuracy, efficiencies, etc.

Related Research Articles

A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques (checks) and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms they are considered as cash.

Cheque clearing process of exchanging a cheque for its funds

Cheque clearing or bank clearance is the process of moving cash from the bank on which a cheque is drawn to the bank in which it was deposited, usually accompanied by the movement of the cheque to the paying bank, either in the traditional physical paper form or digitally under a cheque truncation system. This process is called the clearing cycle and normally results in a credit to the account at the bank of deposit, and an equivalent debit to the account at the bank on which it was drawn, with a corresponding adjustment of accounts of the banks themselves. If there are not enough funds in the account when the cheque arrived at the issuing bank, the cheque would be returned as a dishonoured cheque marked as non-sufficient funds.

Wire transfer, bank transfer or credit transfer is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account or through a transfer of cash at a cash office.

A giro, or giro transfer, is a payment transfer from one bank account to another bank account and initiated by the payer, not the payee. The debit card has a similar model. Giros are primarily a European phenomenon; although electronic payment systems such as the Automated Clearing House exist in the United States and Canada, it is not possible to perform third party transfers with them. In the European Union, there is the Single Euro Payments Area (SEPA) which allows electronic giro or debit card payment to be executed to any bank in the area.

The Australian financial system consists of the arrangements covering the borrowing and lending of funds and the transfer of ownership of financial claims in Australia, comprising:

Cheque method of payment

A cheque, or check, is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account where their money is held. The drawer writes the various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay that person or company the amount of money stated.

Clearing (finance) all activities from the time a commitment is made for a financial transaction until it is settled

In banking and finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled. This process turns the promise of payment into the actual movement of money from one account to another. Clearing houses were formed to facilitate such transactions among banks.

A payment system is any system used to settle financial transactions through the transfer of monetary value, and includes the institutions, instruments, people, rules, procedures, standards, and technologies that make such an exchange possible. A common type of payment system is the operational network that links bank accounts and provides for monetary exchange using bank deposits.

Electronic funds transfer (EFT) are electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of bank staff.

Overdraft

An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply.

Bank teller employee of a bank who deals directly with most customers

A bank teller is an employee of a bank who deals directly with customers. In some places, this employee is known as a cashier or customer representative. Most teller jobs require experience with handling cash and a high school diploma. Most banks provide on-the-job training.

A sweep account is an account set up at a bank or other financial institution where the funds are automatically managed between a primary cash account and secondary investment accounts.

Merchant services is a broad category of financial services intended for use by businesses. In its most specific use, it usually refers to merchant processing services that enables a business to accept a transaction payment through a secure (encrypted) channel using the customer's credit card or debit card or NFC/RFID enabled device. More generally, the term may include:

In banking, a lock box is a service offered by commercial banks to organizations that simplifies collection and processing of account receivables by having those organizations' customers' payments mailed directly to a location accessible by the bank.

Alternative payments refers to payment methods that are used as an alternative to credit card payments. Most alternative payment methods address a domestic economy or have been specifically developed for electronic commerce and the payment systems are generally supported and operated by local banks. Each alternative payment method has its own unique application and settlement process, language and currency support, and is subject to domestic rules and regulations.

A deposit account is a savings account, current account or any other type of bank account that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the bank and represents the amount owed by the bank to the customer. Some banks may charge a fee for this service, while others may pay the customer interest on the funds deposited.

The Clearing House Payments Company L.L.C. (PayCo) is a U.S.-based limited liability company formed by Clearing House Association. PayCo is a private sector, payment system infrastructure that operates an electronic check clearing and settlement system (SVPCO), a clearing house, and a wholesale funds transfer system (CHIPS).

Texas Capital Bank is a commercial bank headquartered in Dallas, Texas. The bank has branches located in every major city in Texas.

An automated clearing house (ACH), or automated clearinghouse, is an electronic network for financial transactions, generally domestic low value payments. An ACH is a computer-based clearing house and settlement facility established to process the exchange of electronic transactions between participating financial institutions. It is a form of clearing house that is specifically for payments and may support both credit transfers and direct debits.

References

  1. Source: Euromoney Cash Management Survey 2016 : The Euromoney Cash Management Survey receives responses from the leading cash managers, treasurers and financial officers worldwide, and is considered the benchmark survey for the global cash management industry. The survey includes non-financial institutions and financial institutions.'
  2. "Cash Management". Reference for Business. Advameg, Inc. Retrieved 14 January 2013.
  3. "Cash Management". Small Business Notes. Retrieved 14 January 2013.
  4. "What Cash Management Tools Are Available?". Advanced Pensions. Archived from the original on 2015-08-27. Retrieved 14 January 2013.
  5. "Cash Management- An Insight" (PDF). Finacle. Archived from the original (PDF) on 10 July 2012. Retrieved 14 January 2013.