Positioning the Cash Manager (2)
November 3, 2008 – 5:14 amThe cash manager’s primary function is to ensure that there are enough sources of funds to cover the uses of cash required by the company’s operating cycle. Sources of funds can be internal, for example, pockets of cash elsewhere in the company, or external, such as from maturing or liquidated investments, borrowing or the sale of assets, goods, or services. The uses of cash include ongoing operating expenses, cost of goods sold, payroll, taxes, repayment of interest or debt, or, in the case of an excess of funds, investments.
The cash manager’s time horizon is usually three to six months. Any decisions requiring long-term financing or investment are typically referred to the treasurer level. In order to perform the role effectively, the cash manager has to receive and share information with numerous internal and external sources.
The Role of the Cash Manager
The cash manager’s primary day-to-day responsibilities include:
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Ensuring adequate liquidity. Maintaining sufficient liquidity reserves to meet the short-term obligations of the company (current liabilities). This requires that sufficient credit is available and that any surplus funds are invested in short-term instruments that can be quickly and easily liquidated.
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Managing daily cash flows. Monitoring funds that are received or disbursed, initiating payments and transfers, controlling cash balances in the bank, and moving funds as necessary.
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Optimizing use of cash resources. Determining the best use of temporary surplus cash. Leaving balances idle in a disbursement account is not a good use of cash. Assuming that the company is paying a higher rate to borrow than the bank is paying on investments, the best use of funds is to reduce interest expense by repaying debt.
Taken From : Essentials of Managing Corporate Cash
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