Best Practices in

Cash Management
WHITE PAPER Cash Management: Achieving Best Practice
Cash management is fundamental to the treasurer’s role, but all too often, inefficiencies and inadequate
visibility prevent treasurers from putting their company’s cash to the best use. By reviewing their cash
management processes and comparing them to industry best practices, treasurers can improve visibility,
increase efficiency – and ultimately make more effective decisions.

76 percent of Optimally managing cash and liquidity, maximizing returns while not increasing liquidity risk, is a growing
treasury executives challenge. Fortunately, there are a number of tools and techniques that companies can adopt in order to
see cash flow improve the way in which this area is managed.
forecasts as needing
improvements over The principles of good cash management are well established, but as new solutions and technologies are
the next two years. developed, new opportunities continue to arise. The treasurer of any company, no matter how large or small,
should regularly take the time to review current cash management processes and ask whether best practice is
SAP/CFO Research, 2013
being followed in each of the key areas.

This paper outlines some of the considerations that companies should focus on when looking to undertake a
review of their cash management processes.

Visibility

Visibility is a fundamental requirement for effective cash management. Without timely visibility over the
company’s cash, a treasurer cannot make effective cash management decisions, and risks holding too much
cash. Liquidity is important, but maintaining too much cash in your liquid assets is inefficient and a waste of
company resources. Good visibility therefore allows a whole series of decisions to be taken to manage cash
and liquidity more efficiently.

Automating connectivity to all the organization’s banks is obviously important. While every bank connection
should be evaluated based on the cost/benefit of acquiring the data, the actual method to automate
connectivity is not always well understood. One popular choice for connecting to the company’s banks is via
SWIFT. However, even when this is possible, it is not always the best option.

The profile of the organization’s bank relationships and the corresponding activity (types and volumes) will
determine the best options – which is often a combination of SWIFT, host-to-host connections, and regional
protocols (e.g. EBICS). SWIFT is easy, but from a cost perspective exclusively connecting via SWIFT is not
always the best option.

The best practice is to understand your connectivity needs (including volumes per transaction type) and to
then make choices based on cost, ease of use, and reliability of the connectivity option.

Primary daily activities undertaken

Operational cash management 78%

Cash position reporting

and forecasting 75%

Risk management 66%

Providing data for
corporate decisions 58%
High-level, strategic
financial analysis 43%

Executive team counsel 19%

Other 12%

Source: Association of Corporate Treasurers 2013 treasury survey

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WHITE PAPER The Value Creation Hierarchy
Once a treasurer has clear visibility over existing cash balances, they will be in a better position to predict
future cash positions. Cash flow forecasting is one of the most important activities carried out within
treasury, but in many cases forecasting is not carried out as accurately as it could be. As a result, the level of
confidence that a treasurer has in the forecast may be limited.

60 percent of Without confidence in the forecast, companies might leave idle cash sitting in the bank which could have been
treasurers forecast invested more effectively if the company had access to more accurate information. The purpose of forecasting
cash flow by taking is to be as lean as possible and to utilize everything at the company’s disposal in order to maximize
the current A/R shareholder value.
balance and apply
an estimated, fixed In order to optimize the accuracy of the forecast, companies should focus their attention on three main
percentage versus components of the process:
leveraging predictive
models. 1. Collaboration - the right people need to be involved in the process, and in many cases, the right people
Forecasting Cash do not report to treasury, so cooperation across teams is critical.
Forecasting, Part Two:
Technology. Aite Group 2. Consolidation - the right data sources need to be included within the forecast. However, sources vary by
LLC, 2013 profile of company and invariably some integration is required, which again depends greatly on cooperation
with other teams.

3. Measurement - the final component is to assess the accuracy of the forecast. In order to make the
forecasting process meaningful, the project owner should measure how accurate the forecast is against
actual results, and should feed the results back to the appropriate sources and individuals, so that inputs
can be refined going forward.

Once the accuracy of the forecast is improved, the next step is to create business value from the forecast. This
can be done in different ways depending on the nature of the company. For cash-rich companies, an accurate
forecast can enable the treasurer to invest cash more strategically. Leveraged companies may be able to
pay down debt if they are able to apply excess balances to their borrowings. In other cases, companies may
choose to use the surplus funds to earn higher returns through supply chain discounts.

lnternational Cash Management

When companies move money internationally, visibility is needed at a deeper level so that the company can
gauge the cash surpluses and deficits for each country and region, and make appropriate decisions about the
optimum use of cash on a country-by-country basis.

It is easy enough, for example, to identify if a company has $500 million of excess cash in Asia, but that cash
may be heavily weighted in a couple of different countries – meaning that tax implications and cross-border
transaction costs must be considered. This increases the importance of effective forecasting because there
is a financial consequence to repatriating funds to corporate or redeploying cash to other regions. That being
said, there can be a bigger financial consequence to letting one region run liquidity surpluses while others are
frequently requiring funding.

When it comes to international cash management, inefficiency costs more, while best practices and
optimization drive more value to the bottom line.

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WHITE PAPER Bank Account Management
Electronic bank account management (eBAM) in its full form, complete with XML messages, is not yet a
reality for most companies – but the industry-wide drive towards eBAM has led to higher awareness among
companies of the importance of effective bank account management (BAM).

Having proper processes and controls in place around bank account management is important, not just to
Buyers that make the company ready for eBAM when it is properly rolled out, but also to give the company a clear view
implement supply over which bank accounts are being opened and who is opening them.
chain finance reduce
working capital by 13 Treasurers need visibility and control over the company’s bank accounts, even if the responsibilities are
percent and suppliers decentralized to local resources. In order to do this, companies need to have an accurate database of the
can reduce working company’s accounts and complete transparency over the signatories for those accounts. In addition, the BAM
capital by 14 percent. system should have in place a workflow enforcing the segregation of controls, such that one person opens an
Supply Chain Finance – account and another person has to approve it.
What’s it Worth? IMD, 2009
Without a controlled workflow there will be limited value when eBAM is available on a public basis. The
process needs to be based on a single system of record and an established set of controls – both of which
can be achieved today.

Good bank account management practices do not stop there, however. Visibility into bank accounts must
include an analysis of bank fees. The objective of this analysis is two-fold:

1. Identify inaccuracies, so mistaken fees can be corrected

2. Optimize banking services and accounts

The optimization effort is enabled by comparing fees versus utilization of each service and account.
Underused accounts (or empty accounts) cost organizations scarce budget dollars that can be redeployed
elsewhere.

This type of proactive financial management is the key to building value from treasury, rather than just
improving productivity of current operations.

Supply Chain Finance

There are two flavors of supply chain finance that can improve business value. Dynamic discounting focuses
on using the buyer’s excess cash and liquidity to fund early payments, generating payment discounts that
represent double digit (sometimes as high as 20 percent) returns.

Payables financing (also known as reverse factoring) addresses the same early payment discounts, but
instead uses third party funding (often from the buyer’s bank) to fund the payment. The improvement to the
buyer is usually delayed payments, which directly improves working capital.

Whether improved cash returns or working capital, there is significant bottom line value to be attained by
integrating treasury into the procure-to-pay cycle.

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WHITE PAPER Conclusion
In the current economic environment, the value of effective cash management is more important than
ever. CFOs and treasurers have more pressure to optimize returns on cash, improve working capital, and
make better financial decisions than in prior years – due to a combination of low interest rates, increased
financial regulations, uncertain risk exposures, and external demands for cash to be utilized or returned to
shareholders.

For the treasurer and CFO, effective cash management is an interconnected process - nothing can be done
effectively without first having good visibility over the company’s cash. Cash visibility enables better cash flow
forecasting, which leads to better decision making – including investing cash, repaying debt or optimizing
cash returns. Armed with the visibility into accurate cash forecasts, the CFO and treasurer’s best practices will
create new business value for the organization.

About Kyriba
Kyriba is the global leader in Proactive Treasury Management. Our software-as-a-service (SaaS) treasury
and risk solutions enable finance teams to optimize their cash, manage their risk, and work their capital.
Our award-winning cash, treasury, payment, risk management and supply chain finance solutions are
used by more than 750 organizations worldwide, including Amway, Electronic Arts (EA), PulteGroup, Inc.,
and Qualcomm, to unlock new business value, drive corporate growth and ensure compliance. For more
information on how to be more proactive in your treasury management and drive business value, contact
treasury@kyriba.com or visit http://www.kyriba.com.

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