Table of Contents

Chapter 1 - Introduction to Cash Management 1

The Nature of Cash Management 1

The Cash Manager Job. 2

Responsibility for Cash Management 5

Cash Management Centralization. 6

Banking Relationships. 8

Types of Bank Accounts. 9

Bank Account Analysis. 10

Chapter 2 - The Cash Forecast 14

The Cash Forecast 14

The Short-Term Cash Forecast 15

The Medium-Term Cash Forecast 18

The Long-Term Cash Forecast 19

The Use of Averages. 19

The Use of Clearing Dates in a Forecast 20

Automated Cash Forecasting. 21

The Reliability of Cash Flow Information. 22

The Impact of Special Events. 23

Cash Forecasting Documentation. 24

The Foreign Currency Cash Forecast 24

The Cash Forecasting Procedure. 24

Cash Forecast Reconciliation. 26

Chapter 3 - The Bank Reconciliation. 29

The Bank Reconciliation. 29

The Daily Bank Reconciliation. 31

The Proof of Cash. 31

Cash Overdrafts. 32

Bank Reconciliation Problems. 32

Chapter 4 - Cash Management Information Requirements. 35

Cash Transfers. 35

Purchase and Sale Transactions. 35

Liquidity Tracking. 36

Interest Income. 36

Mark to Market Tracking. 36

Foreign Exchange Exposure Tracking. 37

Counterparty Risk Tracking. 38

Letter of Credit Tracking. 38

Supply Chain Financing. 38

What If Scenarios. 39

Data Feeds. 39

Accounting. 39

General Information Requirements. 40

Manual Features. 41

Reporting Requirements. 41

The Treasury Dashboard. 41

Control Issues. 42

The Treasury Management System.. 42

Chapter 5 - Cash Receipts. 47

Check Receipts. 47

Check Receipt Improvements. 48

The Bank Lockbox. 48

Automatic Cash Application. 50

Mailstop Number 50

Remote Deposit Capture. 51

Cash Receipts. 51

Cash Receipts Improvements. 52

Credit Card Receipts. 53

Credit Card Receipt Improvements. 53

Enter Information in On-line Form Immediately. 53

On-line Payment Apps. 54

Debit Cards. 54

Chapter 6 - Cash Concentration Systems. 56

The Need for Cash Concentration. 56

Cash Sweeping. 57

The Zero Balance Account 58

Multiple Sweep Arrangements. 58

Manual Sweeping. 59

Sweeping Rules. 59

Sweep Problems. 59

Sweep Costs. 60

Notional Pooling. 61

Notional Pooling Problems. 62

Notional Pooling Costs. 62

Multi-Tiered Banking. 63

Hybrid Pooling Solutions. 63

Cash Concentration Best Practices. 63

Cash Concentration Alternatives. 64

Accounting for Cash Concentration Transactions. 65

The Cash Sweeping Procedure. 66

Chapter 7 - Types of Payments. 71

Cash Payments. 71

Check Payments. 71

Float 72

Advantages of Checks. 73

Disadvantages of Checks. 73

Bank Drafts. 73

Procurement Cards. 74

ACH Payments. 74

Advantages of ACH.. 75

Impact on Float 75

Global ACH.. 75

Wire Transfers. 75

The Letter of Credit 76

The Standby Letter of Credit 77

Positive Pay. 77

The Check Payment Issuance Procedure. 78

Payment Procedure Alternatives. 81

Chapter 8 - Working Capital Enhancements. 84

The Impact of Working Capital on Cash Management 84

Accounts Receivable Enhancements. 84

Credit Enhancements. 85

Billing Enhancements. 86

Collection Enhancements. 86

Accounts Receivable Policies. 87

Inventory Enhancements. 88

Product Design. 88

Product Record Keeping. 89

Inventory Acquisition. 89

Inventory Ownership. 90

Manufacturing Process Flow.. 90

Fulfillment 91

Inventory Disposition. 91

Inventory Policies. 92

Departmental Cooperation. 92

Accounts Payable Enhancements. 92

Terms Renegotiation. 92

Early Payment Discounts. 93

Payment Processing Frequency. 94

Accounts Payable Policies. 94

Reverse Factoring. 94

Researching Working Capital Enhancements. 95

Working Capital Forecasting. 96

Working Capital Strategy. 96

Zero Working Capital 96

Chapter 9 - Investment Alternatives. 99

Investment Guidelines. 99

Investment Strategy. 102

Earnings Credit 104

Repurchase Agreements. 105

Time Deposits. 105

Certificates of Deposit 105

Bankers’ Acceptances. 106

Commercial Paper. 106

Money Market Funds. 106

U.S. Government Debt Instruments. 107

State and Local Government Debt 107

Bonds. 107

The Primary and Secondary Markets. 108

The Discounted Investment Formula. 108

Accounting for Investments - Classifications. 109

Accounting for Investments - Realized and Unrealized Gains or Losses. 112

Accounting for Investments - Purchases and Sales. 112

The Gain or Loss Calculation. 112

Noncash Acquisition of Securities. 113

Assignment of Costs to Securities. 113

Lump-Sum Purchases. 114

Restricted Stock. 115

Conversion of Securities. 115

Sale of Securities. 116

Accounting for Investments - Dividends and Interest Income. 116

Stock Dividends and Stock Splits. 117

Noncash Dividends. 117

The Effective Interest Rate. 117

The Funds Investment Procedure. 118

Chapter 10 - Debt and Equity Funding. 124

Overview of Debt and Equity Funding. 124

The Line of Credit 124

Invoice Discounting. 125

Inventory Financing. 125

Agency Financing. 126

Leases. 126

The Long-Term Loan. 127

Debt Covenants. 128

The Borrowing Base. 129

Debt Risk Issues. 129

Restricted and Unrestricted Stock. 130

Registered Stock. 131

The Accredited Investor. 131

Regulation D Stock Sales. 132

Regulation A Stock Sales. 133

Accounting for a Loan. 134

Accounting for the Sale of Stock. 135

The Line of Credit Borrowing Procedure. 135

Chapter 11 - Credit Rating Agencies. 140

The Credit Rating Environment 140

The Rating Process. 142

Chapter 12 - Clearing and Settlement Systems. 145

The Clearing and Settlement Process. 145

Correspondent Banks. 146

Check Clearing. 146

Foreign Check Clearing. 148

The Automated Clearing House System (ACH) 149

CHIPS. 150

Fedwire. 151

CHAPS. 152

TARGET2. 153

Continuous Linked Settlement 153

SWIFT. 154

Chapter 13 - Foreign Exchange. 158

Buying and Selling Currencies. 158

Types of Foreign Exchange Risk. 159

Risk Management Alternatives. 161

Take No Action. 161

Avoid Risk. 161

Shift Risk. 162

Time Compression. 162

Payment Leading and Lagging. 163

Build Reserves. 163

Maintain Local Reserves. 163

Hedging. 163

Proxy Hedging. 164

Types of Hedges. 165

Loan Denominated in a Foreign Currency. 165

The Forward Contract 165

The Futures Contract 167

The Currency Option. 167

The Cylinder Option. 168

Swaps. 169

Netting. 169

Cash Flow Predictions and Hedging. 171

Hedging Best Practices. 171

Accounting for Hedges. 172

The Foreign Exchange Hedging Procedure. 175

Chapter 14 - Interest Rates. 180

Types of Interest Risk. 180

Risk Management Alternatives. 180

Take No Action. 181

Avoid Risk. 181

Asset and Liability Matching. 181

Hedging. 181

The Forward Rate Agreement 181

The Futures Contract 183

Interest Rate Swaps. 185

Interest Rate Options. 186

Interest Rate Swaptions. 189

Accounting for Interest Rate Hedges. 190

Chapter 15 - Cash Management Controls. 194

The Cash Forecasting Controls Environment 194

The Cash Concentration Control Environment 195

The Funds Investment Control Environment 196

The Foreign Exchange Hedge Control Environment 198

The Debt Procurement Control Environment 199

The Stock Issuance Control Environment 200

Additional Cash Management Controls – Fraud Related. 201

Chapter 16 - Cash Management Metrics. 204

Cash Management Metrics. 204

Cash Conversion Cycle. 204

Days Sales in Accounts Receivable. 205

Days Sales in Inventory. 206

Days Payables Outstanding. 207

Working Capital Productivity. 207

Fixed Asset Turnover Ratio. 208

Auto Cash Application Rate. 209

Suspense to Receivables Ratio. 210

Actual Cash Position versus Forecast 211

Borrowing Base Usage. 211

Average End of Day Available Balance. 212

Earnings on Invested Funds. 212

Unhedged Gains and Losses. 213

Answers to Chapter Questions. 215

Glossary. 237

Index. 242

 

Final Examination………………………………………………………………………………………248