Question

Define, briefly explain how it works and affect the treasury cash management and give examples of the following:

Cash Concentration

Positive Pay

Liquidity Management

Availability Float

Factoring

Debt risk

Account analysis

Earnings credit rate

Short-term financing

Long-term financing

Answer 1

Ans. 1. Cash Concentration: Cash Concentration is the process of improve the efficiency of cash management by transfer cash to the central account from the different accounts. Organisation can easily maintain smaller and large expenses of the business by cash disbursement. Transfer of cash between remote accounts is a management of cash that can improve money dealing with organisational clients by availability of cash on time.Cash concentration and disbursement is developed by the National Automated Clearing House Association (NACHA) to enable organisations to make electronic transfer of funds internally, as well as invoice to externals. Cash Concentration supports secure and fast transactions of cash that are usually low in volume, and time-sensitive.

How Cash Concentration affects Treasury Management:

Treasury Management refers to the process of administrating the financial resources of the organisation to optimize the its liquidity; financial investments and cash management is an essential part of this process. A corporate treasury management strategy, Cash Concentration, manages treasuries by transferring cash to the central account of the organisation from multiple accounts, this is helpful for instant payments, improve investments and availability of funds. In case of large companies, there are multiple subsidiaries, branches and sub-branches that works under it. Cash is available in decentralized form into branches. For centralization of cash, company make a central account in which funds are deposited that are collected from various branches or sub-branches by cash concentration.

For example, A company has three branches, all the branches have their own accounts namely Sub Account 1, Sub Account 2,Sub Account 3. They are depositing their money into the central account of the company. There is a requirement that minimum balance of every account should be $500.Therefore, the gap between the account balance and transfer amount of $500 to maintain minimum balance requirement of the account. The following figure shows the Cash Concentration process of deposit amount in sub accounts to the central account :