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Cash management: definition and structures

Cash management: definition and structures

Corporate Finance covers a wide range of operations, among them, the so called cash management activities, addressed to manage the collections and payments.

10 june 2016

Cash management is structured in a master centralised account and several regional accounts, sectoral or nationals that depend on it. The structuring of cash management of a firm depends, in part, on the level of expansion of the organisation since whether the firm has or not several locations, it will be necessary to delegate tasks and name, among other posts, to directors and accounting chiefs for the local headquarters. Likewise, it can be needed that the firm opens an account in a local bank to make easier the payment of salaries and local bills.

International ‘cash management’

With the adoption of the euro as European single currency, many banks, consultants and multinational companies in the Eurozone reorganised their treasuries. But, what happens when a firm decides to join with another international partner? In this case it is important that in the project implementation there is a collaboration commitment between the bank, the client and, more specifically, between the different directors of local treasuries. The newspaper Expansión, in its article titled Cash management proyect [sic], indicates that the human team in charge of exercising the tasks corresponding with a bank with cash management functions are the following:

  • Agreeing objectives and the reach of the implementation;
  • Appointing a joint project team;
  • Knowing the key activities of the project;
  • Holding regular follow-up meetings;
  • Helping clients to include their accounting and treasury systems with the banking platform and the national banking systems;
  • Giving training and suitable technical support;
  • Coordinating the openings of accounts in the Eurozone.

Structures of ‘cash management’

A firm that works in several countries should opt for a more flexible approach and design a different structure for each one of the countries. Next we describe the three most common structures of cash management:

  1. ‘Overlay’ structure. The firm maintains the relations with the national banks that develop the day-to-day national activity through the director of the treasury of the corresponding country. Over national banks are the regional banks, which make financing or repayment of surpluses and deficits easier. The master account collects the funds that come from each country. The international bank must be affiliated to the national clearing systems, from where all the operations are managed.
  2. Structure of the local bank. In this kind of structure, the bank do not necessarily have to be affiliated to the national clearing systems. Likewise, overlay banking must operate together with the national bank or a partnered bank, also named “superbank”.
  3. Global banking structure. It is a mixture of the two previous structures. In it, the organisation receives the services at a national scale through the overlay banking. The national branch office of the pan-European bank is concentrated in an only finance centre.

In the second four-month period of the University Master’s Degree in Corporate Finance the subject Cash management and relationship with finance entities, which is formed by 3 ECTS credits, is taught. In this subject, the concepts, methodologies and practical instruments in which the business managers of the firms must support to face with assurances the development of the day-to-day activity regarding cash management tasks are studied and applied.

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