Read PDF Working Capital Management: Applications and Case Studies

Free download. Book file PDF easily for everyone and every device. You can download and read online Working Capital Management: Applications and Case Studies file PDF Book only if you are registered here. And also you can download or read online all Book PDF file that related with Working Capital Management: Applications and Case Studies book. Happy reading Working Capital Management: Applications and Case Studies Bookeveryone. Download file Free Book PDF Working Capital Management: Applications and Case Studies at Complete PDF Library. This Book have some digital formats such us :paperbook, ebook, kindle, epub, fb2 and another formats. Here is The CompletePDF Book Library. It's free to register here to get Book file PDF Working Capital Management: Applications and Case Studies Pocket Guide.

Perform simulations to evaluate potential working capital measures. You can play with payment terms, delivery dates and more to see how much working capital can be unlocked. Keep track of all created scenarios to compare and pick the best one to execute. Cashforce will automate different aspects of your treasury operations: treasury payment file generation, accounting entry generation, MTM calculation, ICO netting processes, etc. Our platform has one of the most flexible reporting engines on the market.

Reporting across multiple dimensions, currencies, entities, cash pools, maturities, etc. Cashforce will automatically generate accounting entries for your treasury instruments and send these entries, in the correct format, to your ERP system s. Similarly, we will generate payment files for your treasury instruments and automatically integrate with your payment platform. Cash flows originating from your treasury instruments within the Smart Treasury module, will automatically be fed into the cash forecast. Alcadis is a Belgian-based importer and distributor of cars, active across six different countries.

They can now count on an accurate cash forecast that is automatically consolidated from the different IT systems at the company, strenghtened by manual input and validation. With high trade volumes and a complex internationals organisation, a view on its cash position is key for the global dairy trader. Through the implementation of Cashforce, Interfood went from a 5-day visibility of their cash flow and borrowing base, to a visibility of 3 months ahead. Plastiflex is the world leader in developing and manufacturing hose system solutions for a variety of applications, from health care to floor care.

As a working capital intensive business, they can now be on top of what is happening with their working capital, every step of the way. This case study focuses on the impovement of cash flow forecasting and working capital needs at Interfood. Furthermore, through the implementation of Cashforce, Interfood went from a 5-day visibility of their cash flow and borrowing base, to a visibility of 3 months ahead.

Read More. The survey aims to dig a little bit deeper into the challenges […]. Product Tour. Additionally, some industries are volatile. You may have months of inventory tied up in your supply chain that you have already paid for but will not be able to sell. Cash-to-cash cycle time is the amount of time it takes your working capital to move through your supply chain from raw materials to receipt of sales. Inventory optimization is more or less balancing supply and demand.

The thought of managing cash-to-cash cycle times and inventory optimization is enough to keep even well-seasoned managers up at night. There is, however, a silver lining to these two issues. In most cases, improving one improves the other. When you shorten your cash-to-cash cycle time, you are shortening the amount of time it takes to get inventory to your customers. This in turn means you need to have less inventory on hand at any given time to meet demand.

Working capital explained

So, when your company successfully addresses one issue you will most likely see improvements in the other. At the very beginning of the procurement process, we find the ever-troublesome task of forecasting. To address the challenge of forecasting inventory quantities and determining exactly how much working capital to keep tied up in raw materials, managers can leverage prescriptive analytics.

Prescriptive analytics moves beyond simply translating data to actually offering the best course of action given specified business goals by evaluating millions of scenario outcomes. This action-oriented form of analytics leads to lower margins of error in forecasting and frees up working capital by reducing the amount of safety stock necessary to maintain service levels.

To find the most effective opportunities, we need look for inefficacies in the supply chain itself. Some of the places you might find them include:. A healthy relationship with your suppliers can completely change the way your company does business. When a manufacturer and its suppliers collaborate, they can create new opportunities to free up working capital that is mutually beneficial. One example of this is a manufacturer leasing warehouse space on its property to a trusted supplier. Those costs are added in as well: 5.

Time to apply receipts to receivables and verify the deposit: 3. Time to manage good funds: 1. Finally, the bank must be paid for its services: 7. This all adds to a surprising amount of annual cost. Possible Improvements Based on the ideas discussed in this chapter, the float time can be reduced to 3. The float reduc- tions are in mail, holdover, and availability float. The staff time is in processing the mail, creating the bank deposit, and taking the deposit to the bank. Float is significant because nearly all business elements have inherent delays that increase costs. Although float cannot be eliminated, every step of the working capital timeline should be examined in the search for savings opportunities.

Processing expenses are important because each transaction has a cost and an impact on profitability. Both float and processing expenses can be managed through the use of bank products, the most important of which are lockboxing and controlled disbursement. Electronic transactions are managed using Fedwire and the ACH. For complete information on bank products including features and costs, con- tact a bank.

For the names of selected commercial banks, see Appendix II or contact the national organization for cash and treasury management, the Association of Financial Professionals www. Encoding is the process of entering the dollar amount of the check on the bottom of the face of the check. The Fed actually delivers a cash letter or grouping of clearing checks to a bank operation in a noncity location known as a Regional Check Processing Center [RCPC], or a country point. Recent changes in check processing allow the electronic delivery to these banks of check images, significantly speeding the processing.

However, see the discussion of procurement purchasing cards in Chapter 8. These transaction formats are credit cards with special characteristics useful to companies. There are various ACH rules governing payment formats; the interested reader should refer to the website of the Electronic Payments Association at www. The process involves three steps, which we will review in this chapter.

Arranging for a line of credit or other financing for temporary cash deficiencies or 3B. One technique is regression analysis, which measures how much of a factor the depen- dent variable is caused by other factors the independent variables.


  • Download Working Capital Management Applications And Case Studies.
  • Unstable and Brittle Diabetes (Advances in Diabetes).
  • [Article] Detailed mapping of ascorbate distribution in rat brain.

An example is estimating sales based on experience with such causal factors as advertising, sales calls, and recent sales experience. This tech- nique is effective for companies with a fairly regular sales pattern and is helpful in estimating disbursement check clearings. How to Use the Distribution Method In order to analyze cash flows using the distribution method, a company must accumulate data on patterns of receipts for at least three or four months.

While the example that follows uses monthly data that may be acceptable for a small business, many large companies prepare daily cash budgets while those in the middle market prepare such analyses twice a week. Information Required for the Cash Budget A cash budget is based on accrual accounting2 data such as sales, expenses, and other income statement accounts. We convert sales into expected cash col- lections by assigning the historical experience of customer payment histories as applied to actual sales.

In a similar manner, we transform expenses into cash disbursements. We then add nonrecurring cash events, including dividends, taxes, capital investments, and similar activities. Assume that all sales are credit, with 20 percent collected in the month of the sale, 60 percent collected in the following month, and the remainder col- lected in the second following month.

We can calculate July through September in a similar manner. As we work these calcula- tions through the remaining months, we determine total borrowings and the amount available to invest after the borrowings are repaid. Arranging for Bank Credit When arranging for a line of credit or any type of bank loan, the borrower should come fully prepared to meet with a banker.

Essential documents are the cash budget and pro forma financial statements an income state- ment and a balance sheet. The term pro forma refers to projected or in the form of, and reflects expected results for coming periods. In addi- tion, bank loan officers require audited financial statements from recent reporting periods.

Expect to discuss contingency arrangements in the event of a failure to meet business goals. The banker will indicate the frequency and form of the future exchange of data to keep him or her updated on current developments. Any expectations regarding the use of other bank services, such as the products discussed in Chapter 3, will be strongly suggested. Because of the illegality of tying arrange- ments, bankers cannot require that a borrower buy noncredit services in order to obtain credit.

In the interim, maintain contact with the banker—he or she does not want to be unpleasantly surprised! Lines of Credit A company may arrange with a bank for access to a line of credit, a specified amount of money accessible for a specified time period, usually one year. The bank guarantees the line if it is committed so long as the borrow- ers meet all of the conditions of the agreement. An uncommitted line is not guaranteed but is almost always granted assuming the terms of the lending arrangement are met.

These results are before default losses on nonperforming losses are included. The decision of banks to provide lines of credit without commitment fees has been due to three factors: 1. Banks profitability models have been available only since about , and the assumptions in these models are questionable given the strong negotiating position of large corporate borrowers, at least until the pres- ent credit crisis.

In the past, noncredit products have subsidized credit such as those dis- cussed in Chapter 2. Credit is profitable for banks for certain groups of companies. These in- clude some middle markets and most small businesses, and situations where reasonable returns can be earned in specific industries due to the absence of lending competition.

Furthermore, financial managers do not act prudently when they fail to lock in committed lines. Bargaining and shopping are certainly acceptable, but settling for an uncom- mitted line could be a mistake for the following reasons: 1. While companies may be reluctant to spend this amount to guarantee access to credit, it should be considered to be as essential for business survival as insurance or risk management. As has been noted, banks cannot make an adequate return on uncommit- ted credit lines, and are beginning to carefully review and expunge those activities and others that do not earn target returns.

This is not a new phe- nomenon; banks have been ending unprofitable relationships for at least a decade. The likelihood is that further terminations will occur. A trea- surer does not want to receive a telephone call from his or her banker that an uncommitted line of credit is no longer available. Typical costs are 4 to 5 percent higher than arranging a line of credit. The lender uses the equipment as collateral, and the loan is paid as sales are made to customers of the borrower. This sec- tion discusses the final step in our cash decision: choosing investments appro- priate for any temporary excess of cash.

We paid down our borrowing with the excess cash in August for two reasons: 1. It is always more expensive to borrow than to invest, often by three or four percentage points. The bank expects its borrowers to repay lines of credit as soon as cash is available.

Working Capital Management. Applications and Case Studies. Wiley Corporate F&A

While there has been discussion for about two decades of changing this rule, the restriction continues. We will be discussing the account analysis further in Chapter 5. Companies desiring to earn this credit simply do nothing, and the bank will automatically apply the earnings against any bank service charges. How- ever, the effective return is only 1. Treasury securities. There is a fairly wide choice of investments for companies that use sweeps, including government and corporate securities and offshore higher- yielding opportunities.

Balances are returned the next morning to the DDA. While fi nancial managers may receive advice, they must actively choose among the instruments and maturities. Furthermore, these investments may charge a transaction fee, and there is a cost for the movement of funds to pay for the investment. See Exhibit 4. Treasury bills 1. Treasury notes 3. Treasury bonds 4. The bank sells the BA to investors at a discount and accepts the responsibility for repaying the loan, protecting the investor from default risk.

BAs are generally issued for up to six months. A repo repurchase agreement is an investment contract between a brokerage firm or bank and an investor usually a financial institution or large corporation. The repo is sold with an agreement for repurchase at a future date at a set price, with most settling overnight. There is minimal risk with repos, although companies interested in this investment should ascertain that there is adequate collateral supporting the repo.

Commercial paper involves unsecured notes issued by companies with high credit ratings. Most issuers use CP as a continuing financing source and reissue the CP at the time of redemption. Sales are either direct to inves- tors or through dealers securities firms. Much of the outstanding CP is backed by bank credit lines, minimizing any risk to investors. A significant benefit of MMFs is that relatively small units of funds can be placed, allowing the earning of some yield even to the small corporate investor. The diversification in these funds mitigates any risk from the decline in value of a particular holding.

Securities of the U. Although not generally well known, there are various fed- eral agencies that issue securities to fund their operations. State and local government municipal securities munis have the attraction of having their interest payment exempt from taxes, although yields are less than those of other instruments. The investor has various options in selecting among municipals, including revenue securi- ties, which are backed by revenue streams from specific projects; and general obligation securities, which are backed by the income sources of the issuer. Such policies should reflect the appropri- ate profile on risk and expectations on return.

The purpose of these policies is to protect the company against bad investment decisions and the possible loss of principal. How important is yield, given the safety of principal and liquidity? Investment authority Who is authorized to implement the investment policy and make investments on behalf of the company, and to what limits and in which instruments? Audit trails What type and frequency of reporting and audit trails will be available to monitor compliance with the investment policy?

Permitted or restricted Which investment instruments are permitted or prohibited instruments in the portfolio? What is the accepted credit quality and marketability? Maturity What maturities are acceptable in terms of risk and liquidity? Diversification of What are the allowable positions in different types of investments investments, with regard to issuers, industry, and the country of the issuer?

Securities dealers Who are the acceptable dealers with whom the company is prepared to deal? In what amounts? These are particularly important in the context of the collapse of Bear Stearns in and the possibility of the loss of invested funds. Cash budgeting restates accrual accounting data to cash accounting terms and then determines the beginning and ending cash for each forecast period. Lines of credit and other financial arrangements provide temporary sources of cash during expected deficiencies.

See any standard text; e. Douglas Lind, William G. Accrual accounting attempts to match revenues sales to the costs of devel- oping those revenues. Nearly all large companies use accrual accounting and its conventions, such as depreciation. Cash accounting, used primarily by small businesses, recognizes revenues as cash is received and expenses as cash is disbursed.

These types of loans are not appropriate for working capital; instead, they are used for capital needs involv- ing investments with lives of more than one year. Federal fund Fed funds is the rate that U. Many U. Some banks charge for lines of credit using the prime rate, which is the rate charged by banks to their best small and middle market customers.

Working Capital Management: Applications and Case Studies - James Sagner - Google книги

The analysis and discussion in this section are explored in depth in James Sagner and Herbert Jacobs, Handbook of Corporate Lending, rev. For additional information, visit www. As GSEs, they are privately owned corporations autho- rized to make loans and loan guarantees, with the implied guarantee of the government.

The situation with Bernard Madoff is too well known to require repetition in this chapter. However, there have been other cases involving massive investor losses. In an effort to earn high returns for the county with- out raising taxes, he entered into risky, leveraged fixed income positions. A liquidity default occurred when interest rates increased and bankers for the county required increased collateral.

Those working capital concerns are closely aligned with decisions about banking—which financial institution to use, how to make the selection, how to determine if your prices and services are what your business needs, and how to manage the relationship with your banker. Those days are over; changes in the regulation of financial institutions have completely altered the competitive landscape and, as a result, how a bank treats its customers.

Fewer banks, more products, the integration of technology into the delivery of services see Chapter 10 , and the globalization of business have forced banks to merge or become more knowledgeable, and a handshake has given way to a formal relationship. If a company is still using a bank from 10 or 20 years ago, it may be time to reexamine the situation. In the next sec- tions we will review the functions of the principal banking relationship; in the chapter appendix we will discuss a process frequently used in reviewing banks and financial institutions.

Prior to recent financial deregulation, companies often had affiliations with several banks to provide the services they required. Furthermore, commercial banks were restricted in the use of capital, and could not pursue more lucrative financial business, such as invest- ment banking or insurance. The new regulatory environment allows banks and other financial service companies to pursue a much broader range of opportunities, reducing their reliance on marginally profitable services. A proactive relationship management plan is necessary for companies to satisfy their financial institutions and for bankers to justify the business to their management.

Too often, treasury staff remains unaware of the resulting dilution of its responsibility. Given the current credit environment, it is essential that the finance orga- nization be the gatekeeper for all financial institution contact. This will ensure that an attractive package of profitable business is assembled for the relation- ship banks, and prevent unauthorized negotiations or contracting between the company and other banks.

Companies in this situa- tion may use one of the U. As a result, funds often accumulate in collec- tion accounts. In order to use the funds most effectively, the financial manager needs to mobilize the balances. Large companies may develop their own reporting systems for cash mobilization. Some of these systems require the branch to input the transit routing num- bers8 of client checks to determine when collected funds will be received at the local depository for inclusion in cash mobilization.

Financial managers prepare the necessary wire transfers or ACHs based on a cost—benefit cal- culation for each method. The administrative effort necessary to concen- trate funds can be minimized by the issuance of instructions to the deposi- tory or principal banks to effect transfers based on specific rules. A deposit reporting service DRS assists in the mobilization of funds in local accounts to the principal bank account. The effectiveness of a DRS system relies on the local manager to report accu- rate and timely information, and to actually make the bank deposit!

Too Many Bank Accounts? The complexity and cost of a cash mobilization sys- tem, including the burden placed on the local office manager for notifying the home office and making the deposit, must be weighed against the value of funds transferred. Rather than a minor change to the banking system, it may pay to consider a complete redesign to eliminate local banks and the funds mobiliza- tion process. Companies with more than 25 bank accounts should examine why these accounts are open. The idle accounts can then be closed, saving the monthly maintenance charge and other fees.

If a credit line is constantly being used for working capital as discussed in Chapter 4 , move money back to the lender whenever there is an excess of cash to minimize interest costs. These transfers cost about 50 cents. Selecting the Bank The importance of carefully selecting a bank cannot be overemphasized. Letters of credit and foreign exchange will be required discussed in Chapter 9.

The com- pany will need comprehensive payables discussed in Chapter 8. The company will want to work with a bank with access to and expertise in the capital markets. The banker and the resources that support him or her are critical to businesspeople in these difficult economic times. Issues relating to noncredit services are reviewed in the appendix to this chapter.

Lenders review various information from prospective corporate borrowers, as noted in Exhibit 5. For example, in Exhibit 5. Payments are due monthly by long-standing practice.

Paper Information

For purposes of this book, the types of loans that will be used are lines of credit up to one year in duration but renewable , and term loans and revolving credits that can convert to term loans with durations of three years or more. Obviously, depending on the structuring features of the loan agreement, the conditions precedent will vary e. If so, then a satisfactory guarantee and a satisfactory legal opinion about its enforceability will be required as a condition precedent before loan proceeds can be disbursed.

Cash Forecasting & Working Capital Analytics: Treasury reinvented.

Representations and Warranties Following the conditions precedent section, there is a detailed listing of represen- tations and warranties to be made by the borrower. Restrictions in Lines of Credit Loan covenants apply to lines of credit and other types of credit agreements, which are affirmative or negative restrictions that require certain performance by borrowers. These may include limitations on new debt beyond current borrowings, changes in business strategies or senior management, and vari- ous financial compliance requirements, often as measured by standard ratios in such categories as liquidity, leverage, activity, and profitability.

Exhibit 5. In this example, the bank has a security interest in leasehold improvements, accounts receivable, inventory, equipment, furniture and fixtures, and all cash and noncash proceeds. Note that the precise value assigned to the ratio or metric is usually determined by industry experience. Pricing the Loan Banking continues to be a highly competitive business despite the substantial reduction in the number of financial institutions in recent years.

The Borrower will also furnish to the Bank within 90 days of the end of each fiscal year one copy of the financial statements audited by an independent public accountant. Debt to Assets. The foregoing terms and conditions are not inclusive and the loan documents may include additional provisions specifying events of default, remedies and financial and collateral maintenance covenants. This commitment is conditional upon Bank and the Borrower agreeing upon such terms and conditions. Oral agreements or commitments to loan money, extend credit or forbear from enforcing repayment of a debt, including promises to extend or renew such debt, are not enforceable.

The bank may later agree in writing to modify the agreement. Additional requirements of the borrower are as follows: 1. Resolution of the board of directors authorizing the loan. Warranties by the borrower as normally required, including that the business is duly incorporated, that it is not a party to substantive litigation, and that it is current with all tax payments.

A schedule may show a large amount of unpaid receivables more than 30 or 60 days old, which would be of concern to a lender dependent on that revenue source. See Chapter 6 for a more complete explanation. The rationale is to protect the lender from major adverse events that make the borrower a less attractive client. Pricing in would be significantly less due to the low cost of funds, with a rate of perhaps 4 percent depending on the risk of the borrower.

The standard reference on loan pricing is a Thomson Reuters publication called Gold Sheets, which provides reporting and analysis of the global loan markets. The bank has the right to call the loan any time that the bor- rower is not in compliance with a loan provision, such as a lower current ratio or other ratio than the loan agreement requires.

Banks will work with bor- rowers to adjust expectations as required, but expect to be notified of any mate- rial change in business activity. Control of Banking Records The company should assign the task of updating banking records to a specific manager. Finance staff is often lax in performing this duty. It was previously noted that covenants in loan agreements must be constantly monitored for compliance.

Your financial managers may be entering or download- ing this information from home or a branch office, but are there any logs or other controls to protect the company? Periodic Relationship Reviews Given the partnership orientation of banks and companies, there has been a growing trend toward periodic relationship reviews. The review is often supported by a document discussing the expectations of each party during the coming period, usually one year, and supported by specific calendar targets. SUMMARY The recent credit crisis and changes in the regulation of fi nancial institu- tions have altered the competitive landscape and how banks treat their customers.

There are now fewer banks and more bank products, resulting in the development of relationship management as a comprehensive approach to the bank—corporate partnership, including all of the credit and noncredit services offered by fi nancial institutions. Banking involves situations where multiple collection and disbursement accounts exist and cash must be mobi- lized into and funded from a main bank account.

Interstate banking prohibitions were discussed in Chapter 2. There were some exceptions to this prohibition. The Federal Reserve occasionally would permit an exception when a bank was in danger of failing. The Glass-Steagall Act of separated commercial and investment bank- ing; this law was repealed by the Gramm-Leach-Bliley Act of As with interstate banking see the previous footnote , exceptions to this prohibition occurred.

For example, Merrill Lynch began offering a comprehensive retail financial services product—the CMA account—in In extending credit, banks must allocate scarce capital to support the loan. The Basel 2 and proposed Basel 3 accords require that all lending be supported by senior debt and equity with risk weights for certain types of credit risk.

The standard risk weight categories are 0 percent for short-term government bonds, 20 percent for exposures to developed country banks, 50 percent for residential mortgages, and percent weighting on unsecured commercial loans. For additional information, see www. This term has largely disappeared due to the deregulation that permits full interstate banking in the United States. Their market coverage is extensive but not complete. It is used to route a check to the drawee bank, and essentially constitutes an address. ERISA establishes standards for pension plans in industry.

The law was enacted to protect the interests of employee benefit plan participants and their beneficiaries through the disclosure to them of information concerning the plan; the establishment of standards of conduct for plan fiduciaries; and provi- sions for access to the federal courts. This situation has changed as banks have rationed credit to corporate borrowers while expecting that noncredit service business would be included in any bank- ing package. At some point, the situation may revert to the earlier practice of competi- tive bidding.

The process starts with a request for proposal RFP sent by the company to banks or vendors. Note that several reputable vendors provide the services previously only available from banks. In this discussion, the term bank is meant to include vendors. The RFI is used to determine which banks are qualified and interested in providing banking services.

A list of potential bank bidders can be developed from previous calling efforts; contacts at conferences and meetings; and referrals from accountants, attorneys, and business colleagues. Companies began using RFPs in the s to formalize purchasing deci- sions that had become too casual. Existing bank relationships tended to be given extensions of old business and any new opportunities under consider- ation without a formal bidding process. See Exhibit A5. Issues Covered in RFPs The request for proposal RFP is usually organized as lists of questions pertain- ing to general banking concerns and to specific attributes relating to each ser- vice.

Specific conditions for contracting for services are included. For example, what are the logistics of the bidding process? Who is authorized to speak for the bank and the company? Will the bids be treated with confidentiality?

Enhance your business with working capital management best practices

This is the section of the RFP where references should be requested. Specific Service Issues The issues pertaining to each noncredit service will vary by product. Some examples follow in Exhibit A5. Review of Pricing We defined the account analysis and reviewed the earning credit rate in Chapter 4. In this appendix, we examine how companies are charged for noncredit services. Who performs the fine sort per box number, the bank or the post office? If the bank sorts the lockbox mail, describe the mail sorting operation.

Include manual and automated handling, ability to read bar codes, and peak volume capabilities. Controlled What is the published time at which customers are notified Disbursement of their daily controlled disbursement clearings? How many notifications of clearings are made each day? If more than one notification is made, what percentage of the dollars and items was included in each notification? ACH What procedures are used to verify accurate and secure receipt of data transmissions through a secure Internet server?

Can the bank automatically redeposit items returned for insufficient or uncollected funds? Does the application support use of a LAN local area network or cloud computing? Will assistance with software installation be provided?


  1. Catching Australian Theatre in the 2000s.
  2. Tewkesbury 1471: The Last Yorkist Victory!
  3. 1001 Arabian Nights - Supplemental Nights - Volume 13.
  4. The Challenge?
  5. Astronaut Skill Packet 8 (Preschool Digital Workbooks).
  6. Browse more videos!
  7. Hope and Heartbreak in Toronto: Life as a Maple Leafs Fan!
  8. It is useful to calculate the complete cost of each noncredit service and to determine if any unusual or incorrect fees are being charged. For a directory of more than bank services and their standard codes, see www. Although pricing has long been the consideration in selecting a domestic cash management bank, recent experience has seen a decline in its importance and a rise in the following factors. Deposits are checks presented for deposit.

    Unencoded checks do not have the dollar amount encoded in the MICR line; encoded checks have been imprinted by the corporate depositor with the dollar amount using an encoding machine. Encoded checks usually have a lower unit price. Returned items are checks not honored by the drawee bank, either due to insufficient funds or a stopped payment by the maker. Checks paid are disbursements written against the account.

    Total charges are the sum of the price extensions for all cash management services. Net due for services is the difference between total charges and the ECR allowance based on the balances in the account. Because many bank products are in the mature phase of the product cycle, there is minimal variation in the price charged by most banks. Some banks charge for each specific service, while others include the service in the fee for the underly- ing product. For example, controlled disbursing may include positive pay, or it may be priced separately.

    It is generally recognized that any quality or service problems relating to a specific bank product can cost many times the price per unit of the service. As a result, the savings of a few cents per item is not important when compared to the cost to resolve an error, a communication or transmission problem, or other bank issues. For this reason, one technique that has been helpful is to organize each set of responses into a table, listing the bank names in the columns and the important answers in the rows. It is necessary to array the responses for each question with the intention of assigning points based on a template of average answers.

    For example, despite the maturity of the lockbox product, there are often significant differences in the responses. The application of points to these RFP answers allows for the objective ranking of each bank. The total weight should add to percent, but any individual question can have a weighting ranging from a value of 0 percent to as much as 15 or 20 percent. An illustrative weighted scoring for lockbox services is provided in Exhibit A5. These scores allow the company to consider whether the expected results are consistent with the analysis, or if some adjustment in the weightings is necessary.

    Contact all references and probe to see if the bank has met its credit and noncredit obligations with its other clients. The scores can also be used to inform the banks that were not awarded the business why they lost, to show that the analysis was objective. Managing Banking Relationships Once the decision has been made, the next activity is to review the contracts the bank s will require as an essential part of the relationship. Each service is governed by agreements that address the various requirements of each party to protect both the bank and the company in the event of a dispute.

    Service level agreements cover terms of service for each noncredit product, and will vary depending on specific operating issues. Banks specify standard processing arrangements for the price that is quoted; any variation is consid- ered as an exception, resulting in additional charges. Typical concerns in ser- vice agreements include acceptable and unacceptable payee names on checks for a lockbox; names of initiators and approvers for wire transfers; approved account signatories; and approved users and access restrictions for treasury information systems.

    The bank requires these documents to instruct it on how to handle any transactions that are initiated, and to protect itself in the event of an error or an attempted fraud. Furthermore, the bank will require its customers to indemnify and hold it harmless from and against any liability, loss, or costs arising from each service provided. This chapter discusses accounts receivable while Chapter 7 reviews inventory, the two sig- nificant current asset accounts besides cash.

    Finally, in Chapter 8 we review accounts payable, the significant working capital current liability. If payment is not made, plead, threaten, or—when all else fails—sue! However, the float consequences of poor receivables manage- ment are potentially so devastating that this should be a high priority for a company.

    With cash, we measured float improvement in days. With receiv- ables, it is often measured in weeks. We will then explain how to monitor results. Many companies have some components of this receivables program. Developing Receivables Policies Policies on receivables formalize decisions on the extension of credit to customers.