Cash Management

💰 Treasury Management: Cash Management

The Story of Money’s Journey

Imagine you’re the captain of a giant ship called “Your Company.” This ship needs fuel (money) to sail every single day. Too little fuel? You’re stuck in the middle of the ocean! Too much fuel sitting around? It’s heavy and slows you down. Your job is to make sure you always have just the right amount of fuel, at the right place, at the right time.

This is what Cash Management is all about!

🌊 Cash Management Overview

What Is It?

Cash Management is like being the water manager of a giant water park. You need to:

• Know how much water is in each pool
• Make sure every slide has enough water to work
• Not waste water sitting around doing nothing

In business terms: It’s making sure your company has enough money to pay bills, pay workers, and grow—without keeping too much cash just sitting around earning nothing.

Why Does It Matter?

Think about your piggy bank. If you keep ALL your allowance inside:

• ✅ Safe and ready when you need it
• ❌ Missing chances to buy something cool on sale
• ❌ Could be earning more in a savings account

Companies face the same choice—but with millions of dollars!

graph TD
    A["💵 Cash In"] --> B["🏦 Treasury"]
    B --> C["📊 Track It"]
    B --> D["🔮 Predict It"]
    B --> E["📍 Position It"]
    C --> F["💪 Healthy Company"]
    D --> F
    E --> F

🔮 Cash Forecasting

Predicting the Weather for Money

Remember checking the weather before a picnic? Cash forecasting is predicting the weather for your money.

“Will we have enough money next Tuesday to pay our suppliers?”

Just like weather forecasting, it’s not perfect—but it helps you prepare!

How Do We Predict?

Three ways to forecast:

Real Example 🍕

Pizza Shop Forecast:

• Every Friday, you sell 100 pizzas → $1,500 comes IN
• Every Monday, you buy ingredients → $800 goes OUT
• Rent due on the 1st → $2,000 goes OUT

By knowing this pattern, you never get surprised!

The Golden Rule

“Hope for the best, plan for the worst.”

Always keep a safety cushion—just like keeping an umbrella even when it might not rain.

📍 Cash Positioning

Know Where Your Money Lives

Imagine you have money hidden in 10 different places:

• Some under your bed
• Some in your backpack
• Some at grandma’s house
• Some in your piggy bank

Problem: When you need $20 for a toy, you don’t know where to look!

Cash Positioning means knowing EXACTLY where all your money is, right now, today.

Daily Cash Position Report

Every morning, treasury teams create a “map” showing:

graph TD
    A["🏦 Main Bank: $500K"] --> E["📊 Total Picture"]
    B["🏦 Payroll Bank: $200K"] --> E
    C["🌍 Europe Account: €300K"] --> E
    D["🌏 Asia Account: ¥5M"] --> E
    E --> F["📱 One Clear View"]

Why Position Matters

Without positioning: “Umm… we have money somewhere… I think?”

With positioning: “We have $847,293 available RIGHT NOW across 4 banks in 3 countries.”

The second one sounds more like a superhero, right? 🦸

⚙️ Working Capital Management

The Engine That Keeps You Running

Working Capital = Money for Daily Life

Think of it like this:

• Your allowance = your income
• Buying snacks, paying for games = your expenses
• What’s left over for everyday stuff = your working capital

The Magic Formula

Working Capital = What People Owe You − What You Owe Others + Stuff You Can Sell

In fancy terms:

Accounts Receivable − Accounts Payable + Inventory

Three Parts of Working Capital

The Balancing Act 🎪

Too much working capital:

• Money sitting around doing nothing
• Like buying 100 notebooks when you need 5

Too little working capital:

• Can’t pay bills on time
• Like spending your lunch money on stickers

Just right:

• Enough to run smoothly + a little extra for surprises

🏛️ Bank Account Structures

Your Money’s Home Address

Just like houses have different rooms for different purposes, companies have different bank accounts for different needs.

Common Account Types

Why Multiple Accounts?

Imagine putting ALL your things in ONE big box:

• 🧸 Toys
• 📚 Homework
• 🍫 Snacks
• 💊 Medicine

Finding anything would be CHAOS!

Same with money. Separate accounts = organized company.

graph TD
    A["💰 Company Money"] --> B["🏃 Operations"]
    A --> C["👥 Payroll"]
    A --> D["🏛️ Taxes"]
    A --> E["📈 Investments"]
    B --> F["Suppliers"]
    B --> G["Utilities"]
    C --> H["Employee Salaries"]
    D --> I["Government"]
    E --> J["Growth Projects"]

🏊 Cash Pooling Structures

The Super Pool Strategy

Remember those water parks with one GIANT pool connected to all the smaller pools? Cash pooling works the same way!

Instead of 10 separate bank accounts with money sitting alone, you connect them into one big pool.

Two Types of Pools

1. Physical Pooling (Actual Movement)

Money ACTUALLY moves from small accounts to the main pool.

Example:

• Account A has $100
• Account B has $50
• Account C has $150
• → ALL money moves to Master Account = $300

✅ Benefit: One big pile earns more interest!

2. Notional Pooling (Virtual Connection)

Money STAYS in each account but is COUNTED together.

Example:

• Account A: $100 (stays there)
• Account B: $50 (stays there)
• Account C: $150 (stays there)
• → Bank treats it as ONE $300 account for interest

✅ Benefit: Keep accounts separate but get “big account” benefits!

Visual Comparison

graph LR
    subgraph Physical Pooling
    A1["Acct A: $100"] --> M1["Master: $300"]
    B1["Acct B: $50"] --> M1
    C1["Acct C: $150"] --> M1
    end

    subgraph Notional Pooling
    A2["Acct A: $100"]
    B2["Acct B: $50"]
    C2["Acct C: $150"]
    A2 -.-> V["Virtual Pool: $300"]
    B2 -.-> V
    C2 -.-> V
    end

🎯 Cash Concentration

Bringing It All Together

Cash Concentration is like cleaning your room by putting all your scattered toys into ONE toy box.

Every day (or week), money from many accounts is swept into one main account.

How It Works

Morning:

• New York office: $50,000
• London office: $30,000
• Tokyo office: ¥2,000,000

Evening (After Concentration):

• Master Account: ALL the money combined

Three Methods of Concentration

Real Example 🏢

BigCorp Daily Sweep:

graph TD
    A["🇺🇸 USA: $200K"] -->|Sweep| M["🏦 Master Account"]
    B["🇬🇧 UK: £80K"] -->|Sweep| M
    C["🇯🇵 Japan: ¥10M"] -->|Sweep| M
    M --> D["💪 $500K Buying Power"]
    D --> E["Better Interest Rates"]
    D --> F["Easier Investment"]
    D --> G["Clear Cash View"]

Why Concentrate?

1. More Interest: Banks pay better rates on bigger balances
2. Better Visibility: One place to check, not 50
3. Easier Decisions: “We have $5 million” vs “We have some money in many places… I think?”

🎓 Quick Recap: The Cash Management Journey

🚀 You’re Now a Cash Management Champion!

You understand how big companies manage their money—just like a captain managing fuel for their ship! 🚢

Remember the golden rules:

1. ✅ Know where your money is
2. ✅ Predict when you’ll need it
3. ✅ Keep just enough—not too much, not too little
4. ✅ Organize it into the right accounts
5. ✅ Connect your pools for more power!

Now go forth and manage that cash like a pro! 💪💰