This lesson explores the cash management structures treasurers use to optimise liquidity across the organisation. Efficient cash management is crucial to the long-term success of the organisation.
3.1. Cash Concentration and Pooling
Key cash management structures include:
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Notional Pooling: A method of interest optimisation where balances of multiple accounts are netted for interest calculation purposes without physically moving funds.
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Cash Concentration (Physical Pooling/Sweeping): The process of sweeping surplus funds from subsidiary accounts into a central concentration account at the end of the day.
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Zero Balance Accounts (ZBAs): Subsidiary accounts that are automatically swept to or from a master account to maintain a zero balance.
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Shared Service Centres and Payment Factories: Centralised units that handle transactional and administrative functions, freeing treasury to focus on strategic activities.
3.2. In-House Banking Structures
An In-House Bank is a centralised entity within a corporate group that provides banking services to its subsidiaries. It centralises funding, manages intercompany loans, and streamlines cash flows. The ACT identifies “in-house banks” as a key cash management solution for “day to day funding of operating units.”
3.3. International Cash Management
International cash management requires addressing the complexities of multiple currencies and jurisdictions. This includes mechanisms for remitting cash across a group, such as royalties, dividends, loans, and intra-group trade. Cash forecasting techniques must account for cross-border funding needs and regulatory requirements.
3.4. KPIs and Performance Measurement
The effectiveness of cash management structures is measured through KPIs such as:
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Cash Conversion Cycle: DSO + DIO – DPO.
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Days Sales Outstanding (DSO): Average collection period from customers.
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Days Payables Outstanding (DPO): Average payment period to suppliers.
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Cash Flow Forecast Accuracy: Variance between forecasted and actual cash flows.