Learning Objectives:

• Explain the principles of cash management and liquidity.

• Describe cash concentration, sweeping, and pooling techniques.

• Understand the importance of cash flow forecasting.

2.1 Cash and Liquidity Management
Cash management is a core treasury function focused on ensuring efficient cash collection and payment processes while optimising the use of surplus funds . It involves managing bank accounts, payment types, and clearing systems . Effective liquidity management structures are critical for corporate treasuries .

2.2 Cash Concentration and Pooling
Treasuries use various techniques to optimise cash and liquidity.

• Cash Pooling: A structure used to manage liquidity globally, allowing companies to net balances across accounts in different currencies and jurisdictions .

• Sweeping: An automated process where surplus funds from subsidiary accounts are swept into a central concentration account at the end of the day .

• Virtual Accounts: Sub-accounts of a physical account used for internal tracking and reconciliation, providing granular visibility and control without requiring separate physical bank accounts .

• In-House Banks: A centralised entity within a corporate group that provides banking services to its subsidiaries .

2.3 Cash Flow Forecasting
Cash flow forecasting is the process of estimating future cash inflows and outflows . It is essential for liquidity management, enabling treasurers to anticipate funding needs and investment opportunities. Forecasting methods include direct and indirect methods, and strategic, tactical, and operational approaches . Improving cash flow forecasts requires addressing issues such as data quality, access to internal systems, and collaboration with stakeholders .