The issue of what to invest surplus cash in and which banks to place deposits with is of primary concern to an increasing number of companies. This is becoming a wider issue as many companies are choosing to hold onto surplus cash rather than repay debt. Counterparty risk is now an issue at Board level.
Other Cash Management Services
Other services in the area of cash management would be:
- Tendering selection process and the construction of a request for tender (RFP) where companies and/or government institutions are required to put cash pooling arrangements out to tender
- Associated systems implementation (in particular the efficient linking of bank balance and reporting systems to Oracle and Salmon Software systems)
- Bank charge review to identify cost savings and efficiencies
- Money transmission and bank lodgment efficiency especially geared towards companies in the retail sector.
Company C is a local authority which had a large number of bank accounts spread over a number of banks. It ran simultaneous debt and surplus cash positions for various reasons and as a result had a requirement to invest surplus funds on a regular basis. It operated a cash pool in Ireland with one of the banks. Payments were made both electronically and via paper and lodgments were a mixture of cash, cheques and electronic funds transfers.
The objective of the project was to improve the cash management processes, to reduce associated costs where possible and to deal with the issue of investment returns versus counterparty credit risk as it was vital that surplus cash was invested with financially sound banks and financial institutions.
- Reviewed a list of all bank accounts by bank including branch locations of the accounts
- Identified accounts which could be closed and/or kept outside a cash pool
- Established a cashpool arrangement for the second bank
- Established a means of integrating the cashpool data from the two different banks in order to maximize liquidity
- Established a policy for the investment of surplus cash with appropriate financial institutions. This was based around counterparty credit ratings and other variables
- We also reviewed bank overdraft documentation to ensure that it was appropriate for the institutions involved.
The result was a reduction in the number of bank accounts, better management of the net cash position, lower costs associated with this position, access to a maximum amount of liquidity on a daily basis and investment of surplus cash with only those financial institutions that met strict counterparty credit criteria. We also organised cash and balance reporting on a daily basis in order to address liquidity risk.
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