Cash Management -1

Corporate cash management is perhaps the most critical aspect of working capital management as expressed in an old saying. The thing is finest when the need is urgent. Efficient cash management requires proper cash planning, management of receipts and disbursement and an efficient control and review mechanism. In Cash Management we intend to discuss in some details cash forecasting under uncertainty and decision-making models regarding the temporary investment of cash. We will also briefly review current practices of management of cash. Agentswebworld is nice way to handle agents website management.

CASH FORECASTING UNDER UNCERTAINTY

The worst time to raise cash is when you need it most. The company that cannot predict and plan its short-term cash flows simply does not have a handle on reality. Smart cash managers have learned to forecast cash flows for this reason.

The cash forecast is the estimate of the flows in and out of the firm’s cash account over a particular period of time. The cash flow forecast can cover a short time period (e.g. quarter, month, week or day), an annual accounting period or operating cycle or longer period of time. Forecasts for different time spans have different uses. For example, the long-range cash projections may cover periods ranging from three to five years and is useful in planning business growth, investment in projects, and introduction of new products. We will talk more in next post.

 

Ref: agents website, insurance software, insurance crm

 

Short Term Investments

A cash management imperative is that idle excess balances represent an opportunity cost to the firm. To ignore investment possibilities, even for one day, is inconsistent with the objective of managing cash as an asset that must return value to the company. Our next logical focus is, therefore, on short-term investment strategies.

In most firms, the cash management staff is responsible for short-term investing. Life insurance and Annuity is not good investment when business think about short term investing. Financial One helps to manage investment in life insurance. One reason for this is that the cash manager has ‘hands-on’ knowledge of the money market and its players. Besides, cash manager is equipped, and psychologically geared, to react to fast-breaking investment opportunities. He and his staff are used to thinking in terms of very short time frames, days and hours. In the investment world, that us when profits are made, and fortunes lost.

There are several outlets for short-term investments like inter corporate advances; inter corporate bills financing, stock market operations treasury bills, commercial papers, etc. For individual term life insurance or Mortgage life insurance are good way to have term investment. The return on such investments is different and depends on money market conditions, amounts to be invested, period of investment, and transaction cost. The risks associated with a certain investment determines its safely, marketability and, hence, its yield. For the most part, the cash manager is primarily concerned with preserving principal. Although he hopes for the best returns on short-term investments, he looks for instruments that are, above all, safe. In addition, cash managers are responsible for keeping the firm in a liquid position. If an unexpected need for cash should arise, the cash manager may need to investments before maturity. Thus, an important criterion for a short-term investment strategy is instrument’s marketability.

Collection Experience

We talkd about Credit Analysis. we talked the business magazines generally carry the detailed analysis of financial statements and inter-firm comparison of companies in the same industry. This information would be useful in assessing the market conditions of a particular industry. The company can then explore about the credit worthiness of customer through the references provided by him. Additional information may also be obtained by interviewing the customer or visiting his place of work.

In additional to setting the credit standards, credit period, and cash discount policy, it is also important for the company to design the collection policy and procedures so as to speed up the collections as and when become due. What would the company do if the customers do not pay within the set credit period? In this regard the company has to assess the chances of collecting the accounts receivable by putting some effort. If by putting small effort the chance are that the customer will pay his bill are high then the company should go ahead with that much of effort. In situations when the chances of collecting the money are considerably less than the company should explore other ways of collecting the money. Credit Cards or business credit cards collections are easier and require less effort.

The company can use number of methods to speed up the collections. Letters and telephone calls are the easiest one and least expensive. The company may design a policy of sending a letter few days before the payment becomes due. Depending upon the situation the company can call the customers on telephone just before the due date. A visit to customer may prove to be effective when the bills are overdue. Legal action should be treated as the last resort. Before that the company should try to understand the problems of the customer and if the company finds that the integrity of the customer is at doubt, they should resort to legal action. Pre-paid debit cards are better alternative for low interest credit card. On that basis the company can find out whether the particular debt should be treated as doubtful and should be writer off or not.

Credit Analysis -3

We are talking Credit Analysis. The cost in terms of time and money resources involved in such experience would outweigh the benefits. But at the same time the company has to come o conclusion and satisfy itself that the customer to whom it is extending credit is worthy of it and the risks involved commensurate with the return. Bad Credit Repair analysis helps company to plan their credit policy.

   

In order to undertake credit analysis, the company may analyze the financial statements of the customer. For the companies which are listed on stock exchanges, obtaining their financial statements is not difficult as the same are available with the exchanges. Some of the major stock exchanges regularly publish summarized financial statements in their directories. In case the customer to whom the company is thinking to extend the credit is not listed and the financial information is not available, the company can ask the customer to submit the latest financial statements. In such situations the company may adopt a policy not to extend the credit to customers who do not submit the financial statements. Credit Repair and Credit Repair Services helps to have good credit reports for individuals.

   

Once the company gets the financial statements the following analysis would provide information about the credit worthiness of customers;

  

Ratio analysis

Fund Flow Analysis

 

Inter-firm comparison 

 

 Discriminate analysis and mark or analysis can also be usefully employed for credit analysis.

 

 

 

The business magazines generally carry the detailed analysis of financial statements and inter-firm comparison of companies in the same industry. This information would be useful in assessing the market conditions of a particular industry. Free debt settlement report helps company for credit analysis. The company can also ask the customer to provide the list of references or the names of companies with whom the customers has transacted in the past. The company can then explore about the credit worthiness of customer through the references provided by him. Repair Credit is one of the service helps company for credit analysis.  Additional information may also be obtained by interviewing the customer or visiting his place of work.

 

 

Credit Analysis -2

Capacity is the ability of the customer to meet the obligations whenever they are due. In this regard it would be important for the company to see that the obligations are met through the funds generated from the operations of the customers. That would reflect the long term ability of the customer to meet the obligations. In case the customer is not in a position to meet his obligation out of operations in some abnormal year, the company should examine the capital base of the company. This would indicate the capability of the company to face the problems in case of some difficulty. The company should examine the net worth of the customer to access the capital base. Credit card debt assistance companies help company to examine net worth of individual customer.

 

The market conditions play an important role when one is doing credit analysis. The expected recessionary trends in the market, growing competition and other market factors should be taken into account when doing credit analysis of the customer. Given a particular set of conditions, the costs associated with extending the credit may some times be high. The cost may get reflected in high bad debt expenses or the default in payments. And finally, the company has to examine the kind of security, debt assistance, collateral in the form of assets, the customer is providing.

 

There will always be a problem in obtaining financial and qualitative information about the customers. This problem arises because there is no systematic source of information particularly about the small sized customers. It may not be possible for most of the companies to administer the collection of information about the customers. Company can take help of company who give assistance with credit cards. The cost in terms of time and money resources involved in such experience would outweigh the benefits. But at the same time the company has to come o conclusion and satisfy itself that the customer to whom it is extending credit is worthy of it and the risks involved commensurate with the return.