Traditionally, businesses have believed that profits indicate success. While it is true that profits are one of the key indicators of success, many are now starting to realize that there is something more fundamental to their very survival; and that is ‘cash’. ‘Cash is King’- And this holds true for every business irrespective of its size. The availability of cash balances is a key determinant of a company’s competitive ability, because it provides the means to invest in people, technology, and other assets. Efficient Cash Management is therefore indispensable.

1. Cash Management- An Insight
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2. Traditionally, businesses have believed that Why Cash Management?
profits indicate success. While it is true that
profits are one of the key indicators of success, Lack of control over cash flows and inefficient
many are now starting to realize that there is cash management can be very harmful to
something more fundamental to their very business. More often than not, it is the improper
survival; and that is ‘cash’. ‘Cash is King’- And management of cash that has caused businesses
this holds true for every business irrespective to fail. Effective cash management is therefore a
of its size. The availability of cash balances is a necessity for businesses.
key determinant of a company’s competitive
ability, because it provides the means to invest in Companies heavily rely on knowing their cash
people, technology, and other assets. Efficient position to manage working capital requirements
Cash Management is therefore indispensable. such as ordering inventory, raw material, or
acquisitions/expansion program, for which
What is Cash Management? they need a clear idea of how much cash is
required, and when. This is enabled by efficient
Cash Management comprises of a series of cash management.
activities aimed at efficiently handling the inflow
and outflow of cash. This mainly involves Moreover, a company’s cash position is said to
diverting cash from where it is to where it is be a better indicator of the health of its
needed. In other words, cash management is the business, rather than its profit and loss statement.
optimization of cash flows, balances and short- Hence knowing the cash position is crucial for
term investments. every business to:
‘Cash’ in this context, may refer either to cash in • forecast when, how, and where cash needs
the form of currency, or to other equivalents such may arise
as cheques, drafts, deposits, among others.
While organizations may hold other assets • determine which would be the best source
which can potentially be converted to cash, for additional cash needs, and
cash management essentially deals with the
• be prepared to meet cash needs when
management of liquid cash and near-cash assets
they arise
such as marketable securities and time deposits,
which can be readily converted to cash. The And for better visibility into the cash position
primary feature of such cash balance is that it across banks, across borders, cash management
has no earning power. Nonetheless, it is crucial is crucial. It empowers businesses with the ability
to organizations for three main reasons: to forecast cash flows, plan future business
1. Transaction: Ready cash balances are vital strategies, and manage cash accordingly.
for routine transactions including purchases,
Components of Cash Management
operating expenses, wages, and other
payments such as dividends, taxes and so on. Businesses commonly face issues with slow
2. Precaution: There may be unanticipated movement of funds, long-drawn reconciliation
cash requirements as a result of sudden processes, locked working capital, and loss of
increase in inventory costs, delay in float income. Hence there are certain fundamental
collection of receivables, among others. And requirements for efficient cash management,
maintaining ready cash balances is essential including control over receivables and payables,
to deal with such unforeseen expenses. visibility on cash positions, among others. And to
address these needs of corporate customers,
3. Speculation: Reserving cash balances is banks widely offer cash management services
also crucial when firms anticipate decline in comprising the following:
prices of raw materials, reduction in interest
rates for buying securities, availing early 1. Account Reconciliation: Managing
payment discounts, among others. cheques, monitoring their clearance, and
Cash Management- An Insight

3. keeping track of the true cash balance can expecting solutions around standardization,
be an overwhelming task for businesses reconciliation, integrated banking systems with
because of the huge number of cheques that corporate systems, and real-time reporting for
are processed on a daily basis. Hence overall view of the existing cash position. And
banks offer account reconcilement services the current trends in cash management
wherein corporate customers can upload emerge from banks catering to these needs of
details about the cheques issued on a daily corporate customers:
basis. And at the end of the month, the bank
statement shows information on cheques Complete Visibility: Corporate customers
which have been cleared and those which increasingly expect superior cash forecasting
have not. This system is also helpful in the ability, for which they need complete enterprise
process known as ‘positive pay’, used by level visibility into cash balances and movement
banks to prevent cheques from being of cash. This is provided by banks in the form of
fraudulently cashed if they are not on the list. status reports, direct enquiry, and through
consolidated view of accounts held with
2. Cash Concentration: This is a quick and branches/banks across the globe.
cost-effective method of moving funds from
different accounts spread across the country Rich Reporting Modules: In order to make
to a single monitored and managed account. corporate customers understand the need to
This allows businesses to maximize the use adopt cash management services, banks are
of available cash, and to optimize returns on showing cost-benefit analysis reports, and
consolidated balances. demonstrating the benefits offered by cash
management using graphs and illustrations.
3. Financial Risk Management: Risk
management is the process of measuring Integrated Services: Corporate customers prefer
risk, and developing and implementing a single platform for all their financial needs in
strategies to manage and mitigate risk. place of disparate systems. Hence the focus is
Financial risk management plays an important on integrating cash management systems with
role in cash management, because it focuses other activities involving the bank. For example,
on managing risks in relation to changes in linking of ERP solutions with banking systems
interest rates, commodity prices, stock prices, facilitates cash management by enabling
exchange rates, among others. effective trade finance process and investment
management, among others.
4. Liquidity Management: Forecasting the
cash needs of a business is essential for Remote Deposit Capture and Straight-Through
managing cash flows, short-term borrowings, Processing (STP): In order to accelerate
among others. in an efficient manner, in transactions businesses are looking for solutions
order to ensure that such cash needs can that offer straight through processing capability.
be met if and when they arise. This For example, corporate customers are trying
requirement is addressed through liquidity to streamline their transactions and reduce
management services offered by banks. downtime, for which banks offer STP services
Liquidity management comprises of activities which enable businesses to conduct entire trade
that release the investments locked in processes and payments electronically.
working capital, enabling it to contribute to
higher profits. It also refers to the specific And to better serve the needs of corporate
services provided by banks to enable their customers, banks look to technology vendors
customers optimize their interest revenues who offer optimal solutions that can enable more
and reduce interest costs. efficient cash management.
Cash Management: Corporate Expectations and The Role of Technology in Optimizing Cash
Consequent Trends Management
With growing recognition of the need to adopt Cash management solutions are not new. The
cash management strategies, companies are market is mature and many banks offer efficient
Cash Management- An Insight

4. cash management solutions. But market forces, Eliminating Disparate Systems: Different cash
economic conditions, and changing corporate management solutions are being offered for
trends have generated opportunities for further diverse segments. And as businesses grow,
innovations in this space. managing these disparate systems is increasingly
becoming a challenge. Hence vendors should
Although traditionally a large number of these come up with a single platform which can
solutions have been windows-based, with many support various cash management products and
corporate customers embracing internet banking, services as the business grows.
several banks are now migrating to browser-
based solutions. Technology has been the driving Customizable Solutions: Banks today offer
force in optimizing cash management solutions similar solutions to all corporate customers
for corporate customers: irrespective of their size and business. Hence
vendors should try to come up with a
• Browser-based solutions facilitate customizable platform which can cater to the
centralization of cash management thereby specific needs of different businesses.
enabling better accessibility by users across
the organization thereby having a better Unified System: Integration of corporate
control of cash flows customer systems with banking systems can be
very helpful in reconciliation of internal systems
• Online banking and STP help quicken with banking systems, and can support account
payments, thereby accelerating business management between the bank and customer.
and streamlining processes by eliminating And this offers great scope for vendors.
redundant manual processes
Today, banks are leveraging cash management
• 360 degree view of accounts offers greater systems as a tool to build long-term trust with
visibility on cash position thereby improving corporate customers, because these systems
the forecasting ability. will empower bank’s customers to be empowered
and manage their liquidity position at any given
All these facilities help businesses optimize cash time, thus building a trust and strengthening the
management and consequently help improve their relationship that goes beyond transaction banking.
cash position.
Scope for Improvement
Cash management solutions are now widely Author
being adopted, and hence there is likely
Sai Kumar Jayanty
to be an increase in the number of vendors
Finacle Product Strategy
offering these solutions. Correspondingly,
corporate customers are also likely to become Infosys Technologies Limited
more demanding, thereby promoting more
intense competition amongst vendors. Here are Anuradha Mallya
some areas with scope for improvement which Finacle Product Strategy
vendors can focus on, to provide better services Infosys Technologies Limited
than their competitors:
Cash Management- An Insight