Cash Management Cycle

The Cash Management Cycle

▪ Cash management can be viewed as the backbone of Treasury

▪ It consists in collating and organizing the available information

▪ In order to assess the current situation

▪ And provides data that is critical for the rest of the treasury activity.
© Alain Rividi

2 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 The Cash Management Cycle
Cash
Forecasting

Bank
Net position transactions
funding collections

Group Treasury
Consolidation Matching

Net Cash
© Alain Rividi

Assessment

3 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

Cash Forecasting
Bank Statements collection
and Cash Matching
 Bank Statements Collections

▪ “Bank statements” are one of the key instrument for Cash Management

▪ Received under different file formats (MT940, XML, CFONB) for all accounts
– Either directly from each Bank
– Or through a concentrating Bank (or other provider), receiving all data and delivering a
single feed.
▪ Must contain control elements allowing to verify that
– Opening balance +/- transactions = closing balance
– Date of statement is next business day from previous statement

▪ System must also verify all expected Bank statements are received
– Identify missing banks/accounts
– Contact the bank to understand the issue / renew collection
© Alain Rividi

▪ Modern systems perform these tasks automatically

6 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024
 Bank Statements Collection

▪ Bank statements are usually available on D+1 early morning, after the bank has
closed their accounting cycle
▪ Treasurers are increasingly relying on intraday statements (MT942)
– Delivered by the banks several times per day
– At agreed intervals
– Providing a non-final view of the transactions received since last statement

▪ Allow to accelerate accounting especially for incoming customer receipts

▪ In all cases, Bank statements include

– Transaction date
– Value date
– Amount
© Alain Rividi

– Transaction descriptions
– Various service codes
7 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024
 Bank Reconciliation vs. Treasury Matching

Banking Reconciliation is a key Accounting process

▪ Consists in matching
– Entries in the Accounting Bank ledger
– With entries in the Bank statement provided by the Bank

▪ Aims at ensuring that every transaction on the Bank is matched in the ledger and
vice versa
▪ Key to monitor potential mistakes and Fraud.

▪ Very Different from Treasury Matching

© Alain Rividi

8 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Treasury Matching

▪ Treasury matching
– Is a daily process
– With a very short cycle (7AM - 12)
– Precision is not the key, rather having a correct order of magnitude

▪ Output of the process is twofold:

– A net cash position for the account(s) under consideration for the day that will be the
foundation for the funding decisions
– An assessment of the quality of the work of the bank and the identification of erroneous
transactions
▪ Bank errors in value date, amount or fees codes
▪ Unexpected transactions
© Alain Rividi

9 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Reconciliation vs. Treasury Matching
Cash Matching Bank Reconciliation
Performed by Treasury Accounting
Reconciling bank Treasury Forecast Bank Ledger
statements to…
Periodicity Every business day Usually monthly
Precision Order of magnitude Exact amount to the cent
Nature Operational process Mandatory control
Objective Identify mistakes – obtain Ensure exact equality
reasonable certainty on between accounting and
the cash position bank data
© Alain Rividi

10 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Treasury Matching Decision Tree
Approve
Yes Approve
Yes
Equal to No
Forecast Difference
Yes Valid
Part of No Return to
bundle Bank
Adjust
Included in Bundle
Forecast

No
Approve
Yes
Valid Approve
Identified

No Enquire

No Enquire with
© Alain Rividi

Bank

11 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Statement Analysis (1)
Bank Statement Entry
May 15, 2015 May 15, 2015 MISCPAY EUR -60 000,00 EREF 14/FR014/VIREMENTS DE TRESORERIE EMIS000001 VIR TRESO
TRANS ELEC/BENM//NAME/ INTERNATIONAL TREASURY
SERVICES/EREF/tb.3092151/REMI/TC
TRANSFER/BDB/CHASGB2LXXX

Forecast Entry
May 15, 2015 May 15, 2015 EUR -60 000,00 Virement de Trésorerie - Centrale de Tresorerie

Analysis
Transaction matching perfectly: this is a transaction generated by Treasury and correctly performed by the
bank
Will be automatically matched by the System
© Alain Rividi

12 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Statement Analysis (2)
Bank Statement Entry
May 5, 2015 May 4, 2015 BANKFEE EUR -192 NONREF 62 RELEVE DE COMMISSIONSSERVICE DE BANQUE
ELECTRONIQUEN 104250512443618 DU 05/05/2015

Forecast Entry

Analysis
This is a Bank transaction that is usually not forecasted or at least not forecasted in detail
Will be accepted from the statement and created
© Alain Rividi

13 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Statement Analysis (3)
Bank Statement Entry
Apr 28, 2015 Apr 29, 2015 MISCAR EUR 4 979,23 0000480 02 REMISE CHEQUE 0000480 118DE 6 CHQ 04170

Forecast Entry
Apr 27, 2015 Apr 28, 2015 EUR 4 979,23 remise de 6 Chèques

Analysis
Transaction was forecasted on “quasi actual” base at the time the cheques were deposited in bank. Bank
has credited the right amount, BUT value date is not correct.
This needs to be investigated, based on the actual deposit date/time, and if the cut off times were respected
bank needs to be requested to correct. Transaction will remain pending until correction is booked

Apr 29, 2015 Apr 29, 2015 MISCDEB EUR -4 979,23 0000480 02 REGUL REMISE CHEQUE 0000480 118DE 6 CHQ 04170
© Alain Rividi

Apr 29, 2015 Apr 28, 2015 MISCAR EUR 4 979,23 0000480 02 REMISE CHEQUE 0000480 118DE 6 CHQ 04170

14 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Statement Analysis (4)
Bank Statement Entry
Apr 27, 2015 Apr 27, 2015 MISCAR EUR 765 056,41 EREF 18/FR018/AUTRES VIREMENTS RECUS/ADV/20000002Tartanpion
S.A/ORDP//NAME/Tartanpion S.A.
G.E.I.E./REMI//ADV/2000000207 28.4.2015/EREF/2000000207

Forecast Entry
Apr 27, 2015 Apr 27, 2015 EUR 1 800 000,00 prévision globale de recettes Clients

Analysis
The cash planning process has forecasted for the day a generic Customer receipt amount of 1 800 000,00
EUR. Actual is one received transfer for 765 056,41 EUR
Amount will be accepted from the Bank
© Alain Rividi

Forecast needs to be revised, question: will the 1,1 Mio missing be recovered in the coming period or is it
lost ?
15 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024
 Treasury Matching: some base cases
Case Decision Follow-up
Transaction = Forecast match

Mass Transfers issuance: bank Match actual to forecast Some transactions have been rejected;
amount lower than forecasted make sure info is passed to issuer

Unknown transaction (no Accept bank transaction Verify validity of transaction

forecast) but

Customer Receipt Accept Bank transaction Decision of carry forward of the deltas.
against global forecast

Good amount but incorrect No match Request correction to the Bank

value date

Incorrect amount for an FX Take bank amount – delta Ensure compliance with the forex trading
© Alain Rividi

based transaction caused by difference in FX policies

16 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

Organizing a Treasury Function
 Elements of Group Treasury

▪ If dealing with more than one entity, Group treasury structure should be looked at
– Pooling cash across the group can yield significant savings
– Avoids banks margins
▪ If company A invests with bank they loose margin
▪ If company B borrows with bank they loose margin
▪ If B borrows from A, margins remains in the company
– Allows to improve the overall financial structure of the group and facilitates financial
decisions
▪ Group Treasury structure may be independent from the legal structure
– Concentrating entity may be sister co rather than mother
– Cash should be considered as a Group resource
– Identify Optimum cash consolidation circuit
© Alain Rividi

18 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Centralisation vs. Decentralisation

▪ If Cash has to be centralized to be put at the best possible use at group level, The
Treasury Management structure remains an open question
▪ Both centralized and decentralized approaches can be efficiently run
▪ Decentralized model:
– Local entities retain control on their operations
– They move upward their net position

▪ Centralized model:
– Every operation is performed at the Centre level
– At the extreme their may be no Treasury presence at country or sub level, just a
correspondent within other Finance function
▪ Key factor will be the DNA of the group and the rest of the organizational model
© Alain Rividi

19 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Prerequisite to Group Treasury

▪ Always operate “at arms length” i.e. transacting at market conditions

– Use a common rate index (EURIBOR or EONIA for EUR, LIBOR for other currencies)
– Contracts should be in place between the Central and peripheral entities

▪ Ensure the administrative / accounting system is able to manage the chosen

instruments
– Term loans / deposits
– Current accounts
– More sophisticated derivative instruments

▪ If complex instruments are used accounting and compliance issues become

critical (IFRS 9)
© Alain Rividi

20 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Various Group Treasury organizations
H
A
A Z

B C D
B C D
E F
E F
© Alain Rividi

21 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Roles of a Treasury Centre

What tasks will be entrusted to the Center ?

▪ In-House Bank (IHB) > need of “banking” skills
– Market dealers (FX, Money Market, etc…)
– Specialized accountants for mid/back office roles
– Availability of specialized legal/tax/compliance support

▪ Operational Center > centralization of repetitive tasks

– Clerical level personnel
– Multilingual resource base
– Lower cost environment (salaries, rent, etc..)

▪ Deciding location of a Treasury Center is a complex decision

© Alain Rividi

22 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Where to Locate the Treasury Centre

▪ Available locations (legal entities) or new ones

▪ Legal aspects: which legal and regulatory environment

▪ Banking regulations impacts

▪ Resources aspects: availability of a sufficient pool for the specific skills

▪ Tax environment: hospitable tax environment for the needed instruments

– Impact of international tax treaties environment, withholding taxes
▪ Business model: cost center or profit center
© Alain Rividi

23 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Treasury Organisation

▪ Organization of Treasury departments has significantly evolved in the past few

decades
– Increased globalization
– Increasingly complex instruments available
– Pressure on cost
– Available Technology
▪ A number of factors will influence the organization of a Treasury department
▪ General drive towards increased centralization
– As already discussed, for many subjects covered by Treasury, there are some objective
benefits in centralization.
© Alain Rividi

24 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Dedicated Treasury Department ?

▪ Although Treasury activities are performed in every company there may not be a
dedicated Treasury department,
▪ Tasks are performed by someone in Finance or Accounting.

▪ Several factors come into play:

– Size: various recent studies indicate that most companies above 60 mio EUR turnover
usually have a structured Treasury department
– Footprint: If the company is significantly international, whether in its customer, vendor
or resources base it is more likely to have a structured Treasury department.
– Company DNA: Difficult to impose a centralized organization in a decentralized group
© Alain Rividi

25 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Evolution of Treasury Organization
© Alain Rividi

Source: Thomas Mehani, memoire d’expertise comptable, 2013

26 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024
 Decentralised Semi-Centralised Semi-Centralised Centralised Externalised
Advisory role Agent Role
Financing • Central policy • Central policy • Central Decison • Central Decision Making N/A
Management definition definition making • External transactions
• Reporting • Advisory Role • Negociation « on booked by the Center
• Reporting behalf of » • Intracompany financing
agreement
Cash balances • Central policy • Regional Treasuries • Manual Cash Pooling • Bank driven Cash pooling
management definition
• Reporting
Investment • Central policy • Central policy • Central Decison • Central Decision Making • Investment Instruments such as MMF
Management definition definition making • External transactions (Money Market Funds)
• Reporting • Advisory Rôle • Negociation « on booked by the Center
• Reporting behalf of »
Interest rate • Central policy • Central policy • Central Decison • Central Decision Making N/A
Risk definition definition making • External transactions
Management • Reporting • Advisory Rôle • Negociation « on booked by the Center
Reporting behalf of »
Foreign • Central policy • Central policy • Central Decison • Reinvoicing Center • Banking Services offering auto coverage o
Exchange Risk definition definition making • Or Internal bank limited to currency flows.
Management • Reporting • Advisory Rôle • Negociation « on coverage
Reporting behalf of »
Bank • Central policy • Central policy • Central Decison N/A N/A
Relationship definition definition making
© Alain Rividi

management • Reporting • Advisory Rôle on • Negociation « on

local relationship behalf of »
Source: Thomas Mehani, memoire d’expertise comptable, 2013
28 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024
 The Cash Management Cycle
Cash
Forecasting

Bank
Net position transactions
funding collections

Group Treasury
Consolidation Matching

Net Cash
© Alain Rividi

Assessment

29 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

Cash Balancing
© Alain Rividi

31 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Accounts Balancing

▪ Once the Statements Review / Analysis / Matching is complete, the Treasurer or

Cash Manager is expected to have an accurate view of the cash situation for
each of the accounts, based on the best available information at the time of
decision.
▪ Next step involves
– Concentrating cash balances for each legal entity (step 1)
– Then on group level in case of Group treasury organization (step 2)

▪ In order to prepare for needed funding decision

© Alain Rividi

32 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Accounts Balancing Step 1

Transfer Transfer
Legal Entity Account Currency Balance K To Balance After
Amount Counterpart
Company A Main EUR
Collections EUR

Payroll EUR

USD Acct USD

Company B Main EUR

Vendors EUR

Company C Main EUR

Main USD USD

© Alain Rividi

33 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Accounts Balancing Step 1

Transfer Transfer
Legal Entity Account Currency Balance K To Balance After
Amount Counterpart
Company A Main EUR -3 251
Collections EUR 6 500

Payroll EUR -550

USD Acct USD 1 500

Company B Main EUR +350

Vendors EUR -600

Company C Main EUR -5 684

Main USD USD +10 875

© Alain Rividi

34 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Accounts Balancing Step 1

Transfer Transfer
Legal Entity Account Currency Balance K To Balance After
Amount Counterpart
Company A Main EUR -3 251 +6 000 3 249
Collections EUR 6 500 -6 000 A – Main -50
- 550 A - Payroll
Payroll EUR -550 + 550 0

USD Acct USD 1 500 +1 500

Company B Main EUR +350

Vendors EUR -600

Company C Main EUR -5 684

Main USD USD +10 875

© Alain Rividi

35 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Accounts Balancing Step 1

Transfer Transfer
Legal Entity Account Currency Balance K To Balance After
Amount Counterpart
Company A Main EUR -3 251 +6 000 3 249
Collections EUR 6 500 -6 000 A – Main -50
- 550 A - Payroll
Payroll EUR -550 + 550 0

USD Acct USD 1 500 +1 500

Company B Main EUR +350 -600 B-Vendor - 250

Vendors EUR -600 +600 0

Company C Main EUR -5 684

Main USD USD +10 875

© Alain Rividi

36 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Accounts Balancing Step 1

Transfer Transfer
Legal Entity Account Currency Balance K To Balance After
Amount Counterpart
Company A Main EUR -3 251 +6 000 3 249
Collections EUR 6 500 -6 000 A – Main -50
- 550 A - Payroll
Payroll EUR -550 + 550 0

USD Acct USD 1 500 +1 500

Company B Main EUR +350 -600 B-Vendor - 250

Vendors EUR -600 +600 0

Company C Main EUR -5 684 10000 @ 1,099 = + 5 306

+10 990
Main USD USD +10 875 -10 000 A-Main + 875
© Alain Rividi

37 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Accounts Balancing Step 2
A is the concentrating entity

Balance Transfer Transfer Balance

Legal Entity Account Currency Balance K To / From Interco debt
After Step 1 Amount Counterpart After

Company A Main EUR -3 251 3 249

Collections EUR 6 500 - 50

Payroll EUR -550 0

USD Acct USD 1 500 +1 500

Company B Main EUR +350 - 250

Vendors EUR -600 0

Company C Main EUR -5 684 + 5 306

Main USD USD +10 875 + 875

© Alain Rividi

38 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Accounts Balancing Step 2
A is the concentrating entity

Balance Transfer Transfer Balance

Legal Entity Account Currency Balance K To / From Interco debt
After Step 1 Amount Counterpart After

Company A Main EUR -3 251 3 249 -250 B – Main

Collections EUR 6 500 - 50

Payroll EUR -550 0

USD Acct USD 1 500 +1 500

Company B Main EUR +350 - 250 A – Main + 250 0 Owes 250K

to A
Vendors EUR -600 0 0

Company C Main EUR -5 684 + 5 306

Main USD USD +10 875 + 875

© Alain Rividi

39 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Bank Accounts Balancing Step 2
A is the concentrating entity

Balance Transfer Transfer Balance

Legal Entity Account Currency Balance K To / From Interco debt
After Step 1 Amount Counterpart After

Company A Main EUR -3 251 3 249 -250 B – Main Owes

C – Main +5 000 + 7 999 5000K to C
Collections EUR 6 500 - 50 - 50

Payroll EUR -550 0 0

USD Acct USD 1 500 +1 500 + 1 500

Company B Main EUR +350 - 250 A – Main + 250 0 Owes 250K

to A
Vendors EUR -600 0 0

Company C Main EUR -5 684 + 5 306 -5 000 A – Main + 306

Main USD USD +10 875 + 875 + 875

© Alain Rividi

40 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Executing Balancing Transactions

▪ Once decided, Balancing transactions will become actual Bank transfer

instructions
▪ Can be executed
– By phone with mail confirmation and or call back
– By e-banking tools
– By other transaction banking systems (Host to Host, SWIFT,…)

▪ Are usually governed by specific banking arrangements

– Free of charge
– Or very small unitary fee

▪ These transactions need to be executed in a short time frame, which creates a

challenge in terms of control
© Alain Rividi

41 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

Funding the Net Position:
Investing and Borrowing
 Funding Decisions

▪ Once Net Cash Position has been identified and “centralized”, it can be “funded”
▪ Funding means bringing the net cash position to the appropriate level, using
financial instruments to either
– utilize any excess cash through investment for example
– or procure cash needed to cover any shortage via debt as an example

▪ Funding decision mixes various parameters

– Underlying amount
– Duration
– Available instruments
▪ Banking market
▪ Non banking instruments
© Alain Rividi

▪ Risk appetite

43 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024

 Performing Financing Transactions

▪ In larger organizations, a dedicated internal dealing room may take over from the
Cash Manager to decide and implement the borrowing or investment decision
▪ In smaller organizations, the Cash Manager will interact directly with Banks
▪ In all cases a clear and documented investment/borrowing policy should have
been thought beforehand
– Banking relationship to be used, taking into account counterparty risk
– Acceptable instruments
– Amount limits
– Accounting and back-office procedures

▪ Cash flows proceeding from the funding transactions need to be recorded and
© Alain Rividi

tracked as any other one.

44 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024
 Typical ST Funding or Investment Instruments
Debt Investment
▪ Overdraft: negative balance on the ▪ Positive balance: (not in France..)
account
▪ Term deposits
▪ Term loan: capital is paid back at a
▪ Repo (repurchase agreement)
date known in advance
▪ Mutual Funds (SICAV, FCP)
▪ Receivables backed funding
(Factoring, Discounting) ▪ Disintermediated instruments (NEU
CP/MTN)
▪ Disintermediated instruments (NEU
CP/MTN)
© Alain Rividi

46 A. Rividi, Cash Culture Section 5 Cash Management Cycle March 2024