Managing Ebb and Flow: The Case for Corporate Cash Management

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By Jonee C. Bilasano

Your company faces a gamut of problems.

Youre having difficulties with your collections. They dont come in fast enough. Disbursements have been a challenge as well. There are too many accounts or suppliers that you have to pay at a single time.

Due to your challenges above, you cant determine with reasonable accuracy your corporations cash position. You wonder about your companys liquidity.

Given that cash is still king, what do you do then? How do you solve your problems?

Lucky for you, there are financial institutions, providers, or vendors that can help. They offer cash management solutions.

Pundits define cash management as the corporate process of collecting and managing cash, as well as using it for (short-term) investing. It is a key component of ensuring a company’s financial stability and solvency.

In the Philippines, cash management, in general, deals with three functions: collections, payments, and liquidity management. Collection as the term suggests covers a companys method of collecting from its consumers or clients.

Payments, on the other hand, deals with a corporations task of defraying expenses relative to its suppliers, government fees, utilities, and payroll. Liquidity management deals with monitoring a companys cash levels. The information needed to do this may come from both the payments and collections processes. All these, taken together, show a corporations cash flow or cash management cycle: money coming in and out of the company.

With the concepts crystal, the premises for the ensuing discussion have been laid. One can now appreciate how cash management solutions work.

Any conversation about cash management solutions starts with their providers. In this country, financial institutions offer these services. Banks in this jurisdiction are the most common vendors. This is understandable since banks usually handle the funds of companies. They have initial access already. But, this is not to say that cash management solutions are exclusive to the banking industry. Substitutes like Fintechs or payment centers have already entered the cash management space.

But compared with banks that have already established a foothold in the market, these substitutes are in their nascent stages.

Going back to banks, they already have a track record of offering various tried and tested cash management solutions. These services can range from the undifferentiated to the differentiated. When they are undifferentiated it means that they function in the same way, thus explaining why they have similar names. But some solutions are distinct from the rest of the market. This justifies why their nomenclatures are unique.

However, for purposes of uniformity and brevity, this article will only provide a listing of the typical, common, and off-the-shelf cash management solutions available to the public.

Starting with collection solutions, a company can utilize all or any of the following:

  1. Auto-Debit Arrangement. A company uses an online facility to debit its customersaccounts on scheduled dates. The money collected goes to a corporations designated collection account.
  2. Post-Dated Check Collection and Warehousing. This solution allows the companys customers to pay by issuing post-dated checks before maturity or posting date. The financial institution providing this service in turn stores the checks and credits them to the corporations account upon maturity.
  3. Deposit Pick Up. This involves the physical collection of a companys cash deposits, normally in large amounts, via armored car.
  4. Bills Payment. This service allows a bank for instance to act as a bills payment channel for its biller client corporations, e.g., utility or telecommunications companies, that in turn need to collect from their subscribers, customers, or consumers. People that want to pay their corresponding billerscan do so via the banks branches and automated teller machines. Bills payment nowadays can also be done online.

When it comes to payments, companies can avail themselves of all or any of the following solutions:

  1. Auto-Credit Arrangement. Viewed as the viable opposite of an auto-debit arrangement, an auto-credit arrangement allows a company to pay suppliers, dealers, agents and the like by crediting funds to their accounts in accordance with a pre-defined schedule.
  2. Check Writing System or Check Disbursement. This in general involves outsourcing. A bank can prepare and print a companys batch of checks. This saves time since the corporation does not have to do the manual preparation and printing of numerous checks anymore.
  3. Payroll. This solution allows companies to credit employeessalaries directly to their accounts.

Finally, corporations can manage their liquidity by utilizing this solution:

  1. Sweeping of Accounts. Companies that want to use this solution should have a parent account and corresponding subsidiary accounts. The idea is that funds in the subsidiary accounts can be transferred automatically to the parent account. This service is perfect for companies that have holding corporations and subsidiaries.

Aside from the solutions above, there are of course other services that help manage a companys cash flow. But, theyre usually not your garden-variety cash management service. These offerings have undergone customization or special design. Sometimes the provider itself sees the opportunity to offer a distinct package, or the customers themselves require it. Both scenarios are discussed one after the other.

The specialization of cash management solutions or making them more distinct depends on the overall strategy of the one giving cash management services.

A bank, for instance, may want to strengthen either its collections or payments products. It can in fact augment both if the organizations leadership says thats the way to go. There are those that may opt for the digital route, or focus on developing its liquidity management offerings. There is no approach cast in stone.

Client corporations sometimes will require more than the norm or eschew a run-of-the-mill cash management product. The companies are the types that have specific needs relative to the dictates of their industries. Cash management providers then will have to weigh whether its wise from a business standpoint to develop a solution that may benefit one or a handful of entities. To break the impasse, a cost benefit analysis should be conducted.

Now, to companies that want to outsource or utilize third party cash management services, I offer this advice: know what you need. Sometimes when cash management providers present their solutions, potential client corporations find the offerings too good to pass up. This in turn leads to companies trying to get a lot of cash management solutions that in the end they cannot afford. To remedy this, organizations that want to outsource or need outside cash management support should first determine their overall strategies. Where are they going in the next couple of years? What markets are they trying to target? What capabilities are they trying to develop? These are the questions that they should ask prior to making any acquisition.

After answering the questions above, the finance and/or treasury teams can in turn come up with supporting strategies. The companys overall strategy most likely will need funding; the same plan will entail defraying expenses; the organizations cash levels should be managed all the time. It is in this sense that finance should be ready to support management. Receivables should be collected with haste; payables should be attended to in timely and appropriate fashion; the company should have the ability to pay debts at once if necessary.

Cash management, in the end, is more than the administration of money that goes in and out of a company. If handled in a correct way, cash management can go beyond the realm of efficiency; it can play a vital role in the attainment of a corporations overall plan. Cash management can be strategic.


Jonee C. Bilasano, a banker by profession, considers writing, corporate strategy, and basketball as his passions.