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Cash Mgmt update Best Practice Financial Processes: Cash Management 2 PwC175g Cash Management - Best Practice ObjectivesCash ManagementObjectivesOrganisation PeopleProcesses Controls Measures Information Systems Manage short term liquidity and long term funding requirements Minimise companys cost of capital Efficiently manage the processing of cash transactions Effectively forecast cash requirements Manage petty cash efficiently Centralised cash office & pooling Integrated with Accounts functions Record/manage receipts and payments Manage cash position Perform reconciliations Perform period end closing & reporting Policies & Procedures Bank liaison Authorisation limits Internal controls Speed of reporting Accuracy of forecasting Return on Capital Integrated bank account with sub-ledgers Automatic bank reconciliations On-line/real time Cash forecasting Cash management skills Liaison with financial institutions 3 PwC175g Process Features Segregate cash management from accounts receivable and accounts payable functions Localise cash collection Minimise level of petty cash requirements Transmit mechanisms evaluated on cost and risk basis Create netting arrangement with internal business partners Obtain pan-European banking facilities that allow netting off of account balances Map cash collection and payment cycles, identify actions to minimise these periods Minimum number of banking relationships maintained to ensure coverage and purchasing power Clear unmatched cash within 1 day Regular reconciliation of all cash books. Maintain petty cash imprest systems Obtain access to on line bank statements Monitor the cost of cash transmission mechanisms Cash balances reported on a daily basis by account and business centres Treasury determine short term cash requirements from cash forecast and daily report Cash surpluses managed by Treasury Petty cash/foreign currency floats periodically audited Company loan accounts reconciled monthly Treasury consolidate and manage cash forecast requirements Monitor bank facilities to minimise interest payments and maximise receipts Forecast cash on a regular basis: rolling 12 month forecast - annual 5 year ahead reviews Cash Management - Best Practice FeaturesEstablish and maintain cash control mechanisms Perform bank reconciliations Report andmanage cash balances Forecast cash requirements 4 PwC175g System Features EDI used for majority of payments and receipts Comprehensive system security and password features for payment Multi-currency systems. Transmission used for bank statements Bank remittance notices issued with sales invoices Electronic reconciliation of bank statement and cash book Currency rates available for sterling equivalents Individual bank account cash balance reports produced on a daily basis Summary consolidated cash reports available on-line to Treasury Intercompany netting bank accounts reconciled automatically Integrated enquiry from cash book entries to sub-ledgers Automatic production of cash forecast statements from commitment/accrual accounting Project analysis and control linked to finance systems Analysis by market share/product cost etc Cash Management - Best Practice FeaturesEstablish and maintain cash control mechanisms Perform bank reconciliations Report andmanage cash balances Forecast cash requirements 5 PwC175g Cash Management - Critical Success Factors These are a summary of the key business requirements, which must be met to achieve Cash management objectives. Electronic Interfaces with Accounts Payable, Accounts Receivable, Payroll and General Ledger Establish and maintain good relations with banks Agree Finance terms Reconcile bank accounts on a regular basis EDI for the majority of payments and receipts Automated bank reconciliation systems and processes Cash monitoring and forecasting techniques provide first class accuracy Integrated on line systems to audit trail cash transactions Operate minimum petty cash and foreign currency floats Separation of Cash management staff duties from other finance operations 6 PwC175g Cash Management - Measures / Cost DriversMeasures Cost of Capital Number of bank accounts Number of banking relationships Number of outstanding reconciling items 3 months old Difference of interest rate of cash accounts vs. Money Market rates per currency Percentage of cash transactions effected electronically Number of days in obtaining value for funds Floating days per bank Cost of cash function as a percentage of total finance cost Number of cash transactions per FTE Number of unreconciled cash transactions Number of accounts outside cash pooling 7 PwC175g Cash Management - Measures / Cost DriversCost Drivers Electronic payment and receipt mechanisms Number of banking locations and bank accounts Number of international locations System interfaces available for cash entries Types of payments and currencies used Number of petty cash sites Number of transactions per day Extent of government regulation 8 PwC175g Cash Management - Level 0 Context DiagramCash ManagementBudgetingand control Cash officeManagementteamAudit PurchasingAccountsreceivableAccountspayablePayrollBanksGeneralledger FinancialinstitutionsCash forecastingCashflow monitoring & forecastingCheck reconciliations Treasury expertise RemittancesCommitment detailsPetty Cash Process ReceiptsProcess PaymentsPayroll paymentsCM details BankStatementsSales order processingSales orders Cash requirements 9 PwC175g Cash Management - Level 1 Overview Customer accountsCashiersBankCM & BillingsystemRecord receiptsDaily bankingReceive cashcheques bank receipts Receipt information included incash book and GLAP controlsAuthorisationPayment TermsMatching rulesAuthorised invoice/expense, DD/SO,Other payments, Cash Cash Office (CO)AP department & systemBankFDPayroll departmentPerson requesting cash Reconciliation proceduresException reportsClear unmatched itemsJournal rules Reconciled cash booksCash Office (CO)AP report Customer accountsManagement AccountantBankPayment information includedin AP (cashbook) and GL Reporting proceduresReviewBenchmarkingCash management staffBankTransmission Mechanism Close procedureReconciliation proceduresForecasting rules and proceduresReporting formatsForecast & Reporting TimetablesFinancial accountant Cash management staffAPCustomer AccountsSales & MarketingCustomer EngineeringStrategic PlanningManagedcash ReportsBank statements Cash forecasts ConfirmarrangementsLoan details& repaymentschedules Process receiptsCM1.1 Process paymentsCM1.2 Reconcile bank statements to ledgers CM1.3 Manage cash position CM1.4 Period end closing forecasting & reportingCM1.5Cash updatesCurrent banking terms and transaction rates 10 PwC175g Cash Management - Appendix 1 : IDEF Process FlowThe diagram below provides a key to the process diagrams used in this document.Process / activityControls(i.e. Procedures Standards Requirements for rework)Output(i.e. Information Material)Resources(i.e. People Functions IT systems Machines)Input(i.e. Information Material)
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