Cash Mgmt update Best Practice Financial Processes: Cash Management

2 PwC175g Cash Management - Best Practice Objectives Cash Management Objectives Organisation People Processes Controls Measures Information Systems  Manage short term liquidity and long term funding requirements  Minimise company’s 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 Features Establish and maintain cash control mechanisms Perform bank reconciliations Report and manage 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/accru al accounting  Project analysis and control linked to finance systems  Analysis by market share/product cost etc Cash Management - Best Practice Features Establish and maintain cash control mechanisms Perform bank reconciliations Report and manage 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 Drivers Measures  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 Drivers Cost 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 Diagram Cash Management Budgeting and control Budgeting and control Cash office Management team Management team Audit Purchasing Accounts receivable Accounts receivable Accounts payable Accounts payable Payroll Banks General ledger General ledger Financial institutions Financial institutions Cash forecasting Cashflow monitoring & forecasting Check reconciliations Treasury expertise Remittances Commitment details Petty Cash Process Receipts Process Payments Payroll payments CM details Bank Statements Sales order processing Sales orders Cash requirements

9 PwC175g Cash Management - Level 1 Overview Customer accounts Cashiers Bank CM & Billing system Record receipts Daily banking Receive cash cheques bank receipts Receipt information included in cash book and GL AP controls Authorisation Payment Terms Matching rules Authorised invoice/expense, DD/SO, Other payments, Cash Cash Office (CO) AP department & system Bank FD Payroll department Person requesting cash Reconciliation procedures Exception reports Clear unmatched items Journal rules Reconciled cash books Cash Office (CO) AP report Customer accounts Management Accountant Bank Payment information included in AP (cashbook) and GL Reporting procedures Review Benchmarking Cash management staff Bank Transmission Mechanism Close procedure Reconciliation procedures Forecasting rules and procedures Reporting formats Forecast & Reporting Timetables Financial accountant Cash management staff AP Customer Accounts Sales & Marketing Customer Engineering Strategic Planning Managed cash Reports Bank statements Cash forecasts Confirm arrangements Loan details & repayment schedules Process receipts CM1.1 Process payments CM1.2 Reconcile bank statements to ledgers CM1.3 Manage cash position CM1.4 Period end closing forecasting & reporting CM1.5 Cash updates Current banking terms and transaction rates

10 PwC175g Cash Management - Appendix 1 : IDEF Process Flow The diagram below provides a key to the process diagrams used in this document. Process / activity Controls (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)