Table of Contents

Chapter 1 - Treasury Management 1

Treasury Responsibilities. 1

Treasurer Job Description. 1

Treasury Organizational Structure. 3

Treasury Centralization. 5

Treasury Outsourcing. 6

The Performance Culture. 6

Schedule of Activities. 7

Process Reviews. 7

Department Layout 8

Skills Review and Training. 9

Chapter 2 - Bank Relations. 12

Bank Centralization. 12

Banker Dialog. 12

Frequency of Reporting. 13

Bank Fees. 13

Loan Covenants. 14

Collateral 14

Account Signers. 15

Credit Assessment 15

Causes for Change. 16

Chapter 3 - Cash Concentration. 18

The Need for Cash Concentration. 18

Cash Sweeping. 19

The Zero Balance Account 20

Multiple Sweep Arrangements. 21

Manual Sweeping. 21

Sweeping Rules. 21

Sweep Problems. 22

Sweep Costs. 22

Summary. 23

Notional Pooling. 24

Notional Pooling Problems. 24

Notional Pooling Costs. 25

Summary. 25

Multi-Tiered Banking. 25

Hybrid Pooling Solutions. 25

Cash Concentration Best Practices. 26

Cash Concentration Alternatives. 26

Chapter 4 - Cash Forecasting. 30

The Cash Forecast 30

The Short-Term Cash Forecast 31

The Medium-Term Cash Forecast 34

The Long-Term Cash Forecast 35

The Use of Averages. 35

Automated Cash Forecasting. 36

The Reliability of Cash Flow Information. 37

The Impact of Special Events. 38

Cash Forecasting Documentation. 39

The Foreign Currency Cash Forecast 39

Cash Forecast Reconciliation. 39

Chapter 5 - Clearing and Settlement Systems. 42

The Clearing and Settlement Process. 42

Correspondent Banks. 43

Check Clearing. 43

Foreign Check Clearing. 45

The Automated Clearing House System (ACH) 46

CHIPS. 47

Fedwire. 48

CHAPS. 49

TARGET2. 50

Continuous Linked Settlement 50

SWIFT. 51

Chapter 6 - Investment Management 55

Investment Guidelines. 55

Cash Availability Scenarios. 57

Investment Strategy. 58

Types of Investments. 61

Repurchase Agreements. 61

Time Deposits. 61

Certificates of Deposit 61

Bankers Acceptances. 61

Commercial Paper 62

Money Market Funds. 62

U.S. Government Debt Instruments. 62

State and Local Government Debt 63

Bonds. 63

The Primary and Secondary Markets. 64

The Discounted Investment Formula. 64

Chapter 7 - Equity Financing. 66

Regulation D Stock Sales. 66

Regulation D Rules. 66

Regulation D Process Flow.. 66

The Form D Filing. 68

Rule 506(c) 69

The Accredited Investor. 70

Regulation A+ Overview.. 70

Private Investments in Public Equity. 71

Crowdfunding. 72

Requirements. 72

Disclosures. 73

Limits on Advertising and Promoters. 74

Restrictions on Resale. 75

Exemption from Section 12(g) 75

Bad Actor Disqualification. 75

Seasoned Equity Offerings. 76

The Rights Offering. 76

Dilution. 77

Chapter 8 - Debt Financing. 81

Overview of Debt Financing. 81

The Line of Credit 81

The Borrowing Base. 82

Invoice Discounting. 83

Factoring. 84

Receivables Securitization. 84

Inventory Financing. 85

Loan Stock. 86

Purchase Order Financing. 86

Hard Money Loans. 86

Mezzanine Financing. 87

The Long-Term Loan. 87

Bonds. 88

Debt for Equity Swaps. 89

Chapter 9 - Supply Chain Financing. 92

Supply Chain Financing. 92

Early Payment Discounts. 93

Chapter 10 - Treasury Risk Management 97

Benefits of Risk Management 97

Funding Risk. 98

Credit Policy Risk. 99

Credit Exposure Risk. 99

Terms Alterations. 99

Receivables Financing. 100

Outside Financing. 100

Portfolio Approach to Risk. 100

Cross-Selling Credit Exposure Risk. 101

Credit Concentration Risk. 101

Foreign Exchange Risk Overview.. 102

Foreign Exchange Risk Management 103

Take No Action. 103

Avoid Risk. 103

Shift Risk. 104

Time Compression. 105

Payment Leading and Lagging. 105

Build Reserves. 105

Maintain Local Reserves. 105

Hedging. 106

Summary. 106

Types of Foreign Exchange Hedges. 106

Loan Denominated in a Foreign Currency. 107

The Forward Contract 107

The Futures Contract 108

The Currency Option. 109

The Cylinder Option. 110

Swaps. 110

Netting. 111

Interest Risk Overview.. 112

Interest Rate Risk Management 113

Take No Action. 113

Avoid Risk. 113

Asset and Liability Matching. 113

Hedging. 114

Types of Interest Rate Hedges. 114

The Forward Rate Agreement 114

The Futures Contract 116

The Interest Rate Swap. 118

Interest Rate Options. 119

Interest Rate Swaptions. 122

Chapter 11 - Insurance. 124

Insurance Distribution. 124

Insurance Policy Terms and Conditions. 125

Indemnity. 125

Deductibles. 125

Limit of Insurance. 125

Coinsurance. 125

Exclusions. 126

Insurance Riders. 126

Perils. 127

Endorsements. 127

Who is the Payee?. 127

Insurance Company Analysis. 127

Insurer Financial Performance. 128

Boiler and Machinery Insurance. 129

Business Interruption Insurance. 129

Policy Inclusions. 129

Additional Coverages. 130

Management Actions. 130

Commercial Automobile Insurance. 131

Commercial Crime Insurance. 131

Commercial General Liability Insurance. 132

Coverage Limitations. 132

Umbrella Coverage. 133

Credit Insurance. 133

Directors and Officers Liability Insurance. 134

Management Actions. 135

Additional Coverages. 135

Inland Marine Insurance. 135

Life Insurance. 135

Property Insurance. 136

Types of Property. 136

Policy Inclusions. 136

Policy Exclusions. 137

Additional Coverages. 137

Coverage Limitations. 138

Valuation Issues. 138

Management Actions. 138

Surety Bonds. 139

Surplus Lines Insurance. 139

Managing the Cost of Insurance. 140

Broker Training. 140

Odds Analysis. 140

Insurer Messaging. 140

Covered Items Analysis. 141

Double Coverage Analysis. 141

Split Limits Elimination. 141

Continual Policy Updates. 141

Unlikely Payouts. 141

Non-Comparability. 142

Deductibles Analysis. 142

Small Claims Avoidance. 142

Self-Funded Insurance. 142

Captive Insurance Company. 143

Insurance Claims Administration. 144

Chapter 12 - Credit Management 146

Overview of the Credit Policy. 146

Credit Policy: Mission. 146

Credit Policy: Goals. 147

Credit Policy: Responsibilities. 147

Credit Policy: Required Documentation. 148

Credit Policy: Review Frequency. 149

Credit Policy: Credit Calculation. 150

Credit Policy: Terms of Sale. 150

Credit Policy: Revision Frequency. 151

The Credit Application. 152

Adjustments to the Credit Application. 153

Trade References. 154

Updating the Credit Application. 155

The Credit Rating. 155

Internal Credit Rating Systems. 156

Third Party Credit Ratings. 158

Use of Credit Ratings. 159

Credit Rating Errors. 159

Credit Documentation. 159

Indicators of Future Payment Delinquency. 160

Ongoing Credit Monitoring Actions. 161

Requests for Credit Increases. 163

The Riskiest Customers. 164

Chapter 13 - Working Capital Management 167

The Nature of Working Capital 167

The Importance of Working Capital 168

The Optimum Amount of Working Capital 169

Zero Working Capital 169

Working Capital for a Growing Business. 170

Working Capital for a Declining Business. 172

Responsibility for Working Capital 172

The Receivables Component of Working Capital 173

Receivables Strategy. 173

Inventory Strategy. 174

Replenishment Strategy. 175

Fulfillment Strategy. 176

Customization Strategy. 177

Startup Outsourcing Strategy. 177

Payables Strategy. 177

Chapter 14 - Accounting for Treasury Transactions. 180

Other Comprehensive Income. 180

Investment Classifications. 182

The Realized and Unrealized Gain or Loss. 185

Purchase and Sale of Investments. 185

The Gain or Loss Calculation. 185

Noncash Acquisition of Securities. 186

Assignment of Costs to Securities. 186

Lump-Sum Purchases. 187

Restricted Stock. 188

Conversion of Securities. 188

Sale of Securities. 189

Accounting for Dividends and Interest Income. 189

Stock Dividends and Stock Splits. 190

Noncash Dividends. 190

Ongoing Accounting for Investments. 190

Investment Transfers. 192

The Effective Interest Method. 192

Impairment of Investments. 195

What is a Derivative?. 196

Hedge Accounting - General 198

Hedge Accounting  Fair Value Hedges. 199

Hedge Accounting  Cash Flow Hedges. 201

Accounting for Insurance. 204

Insurance Payments. 204

Claims Receipts. 205

Chapter 15 - Treasury Management Systems. 207

Components of a Treasury Management System.. 207

Advantages of a Treasury Management System.. 208

Disadvantages of a Treasury Management System.. 208

Additional TMS Considerations. 209

Data Feeds. 210

Chapter 16 - Treasury Controls. 212

The Cash Forecasting Controls Environment 212

The Funds Investment Control Environment 213

The Foreign Exchange Hedge Control Environment 216

The Debt Procurement Control Environment 217

The Stock Issuance Control Environment 218

Additional Treasury Controls  Fraud Related. 219

Terminating Controls. 219

Chapter 17 - Treasury Measurements. 222

Treasury Metrics. 222

Cash Conversion Cycle. 222

Days Sales in Accounts Receivable. 223

Days Sales in Inventory. 224

Days Payables Outstanding. 224

Actual Cash Position versus Forecast 225

Earnings on Invested Funds. 226

Ability to Pay Measurements. 226

Interest Coverage Ratio. 227

Debt Service Coverage Ratio. 227

Fixed Charge Coverage Ratio. 228

Cash Coverage Ratio. 228

Debt to Equity Ratio. 229

Average Cost of Debt 230

Borrowing Base Usage. 231

Additional Treasury Measurements. 232

Answers to Chapter Questions. 234

Glossary. 260

Index. 264

 

Final Examination.............................................................................................................................................270