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Home > Cash Flow Management Best Practice

Cash Flow Management Best Practice

Best Practice

Internationally renowned finance leaders, experts and educators distil and summarize the most important aspects of finance best practice. Each Best Practice essay has an Executive Summary for quick reference, outlining the main points. The Making It Happen feature illustrates practical applications, and where relevant authors have provided illustrative case studies and definitions.

  • Allocating Corporate Capital Fairly
    by John L. Mariotti
    The appetite of organizations for capital is insatiable. Understanding the nature of capital and its effective allocation is essential to organizational success. Classical economics defines land, labor, and capital as the determinants of wealth, each being exclusive to its owner. Now there is a fourth determinant of wealth—information—and it is nonexclusive. The more information is shared, the more valuable it becomes. Business is a competition...
  • Best Practices in Cash Flow Management and Reporting
    by Hans-Dieter Scheuermann
    With margins getting squeezed, the optimized use of the resource known as capital has never been more important for companies. At the same time, the globalization of the markets means that new risks must be hedged due to volatile currencies. Risks from interest rates, supply, and quality must become transparent. Customer and vendor credit risk with their link to dependent ‘risk family trees’ after the subprime crisis is obvious. Company...
  • Best-Practice Working Capital Management: Techniques for Optimizing Inventories, Receivables, and Payables
    by Patrick Buchmann, Udo Jung
    Many companies still underestimate the importance of working capital management as a lever for freeing up cash from inventory, accounts receivable, and accounts payable. By effectively managing these components, companies can sharply reduce their dependence on outside funding and can use the released cash for further investments or acquisitions. This will not only lead to more financial flexibility, but also create value and have a strong impact...
  • Cash Flow Best Practice for Small and Medium-Sized Enterprises
    by Rita Herron Brown
    In late summer 2008, a Californian company that helped businesses to cut their power consumption costs, BluePoint Energy, found itself in very hot water. BluePoint’s CEO, Guy Archbold, had stated a year earlier that the company would soon lock down contracts to bring in more than US$50 million in revenue. However, this didn’t happen. And when newspapers reported that Archbold had been suspended, they also reported that the company had lost...
  • Comparing Net Present Value and Internal Rate of Return
    by Harold Bierman, Jr
    To this point neither of the two discounted cash flow procedures for evaluating an investment is obviously incorrect. In many situations, the internal rate of return (IRR) procedure will lead to the same decision as the net present value (NPV) procedure, but there are also times when the IRR may lead to different decisions from those obtained by using the net present value procedure. When the two methods lead to different decisions, the net...
  • Factoring and Invoice Discounting: Working Capital Management Options
    by Irena Jindrichovska
    Factoring is provided by financial institutions, for example banks and individual factoring brokers. It is a form of asset-based financing, where the factor provides funding based upon the values of a borrower’s accounts receivable, i.e. corporate debtors. The receivables are purchased by the factor rather than used as collateral for a loan. This means that the ownership of receivables shifts from the seller to the factor. Factoring generally...
  • How Taxation Impacts on Liquidity Management
    by Martin O’Donovan
    Taxation is highly dependent on the specifics of the companies concerned and the tax jurisdictions to which they are subject. Nonetheless, there are sufficient structural similarities between countries so that background generalizations can be made, although the specific rules and tax rates vary over time and will need to be verified with local tax experts.Tax is initially assessed on the basis of each legal entity in isolation, but various...
  • How to Assess a Company’s Global Treasury Needs and Objectives Successfully
    by Gary Silha
    Since Tenneco is in the auto industry, there is an analogy I often use when I am asked what is the best global liquidity management structure. There is a reason that auto manufacturers make cars in different shapes and colors: Consumers all have different needs and desires. Similarly, corporations have different objectives when implementing a global liquidity management structure. Identifying a company’s needs and objectives is the first step in...
  • How to Better Manage Your Financial Supply Chain
    by Juergen Bernd Weiss
    Benchmarks of business performance indicate that enterprise resource planning (ERP) systems and other enterprise technologies have transformed customer and supply chain processes but that the performance of the finance function has hardly changed. Although some companies have managed to improve the performance of their financial processes profoundly, financial functions are still neglected in many businesses, and days sales outstanding (DSO) and...
  • Managing 21st Century Finances
    by Terry Carroll
    Corporate purpose, for most companies, is to create and sustain long-term stockholder value. However, markets can be driven by fear or euphoria. Stuck in the middle are top managers, especially the CFOs. They have to balance long-term planning with “short-termist” behavior in the markets. How can this be achieved? What are the new metrics for survival and sustainable prosperity?As some companies have destroyed value, some have begun to question...
  • Managing Liquidity in China—Challenging Times
    by Marlene Wittman
    Efficient cash and liquidity management in China is a multifaceted challenge—a treasurer has to scrutinize China’s regulatory environment constantly. In the past regulation has been “lyrical” at best and arbitrary at worst. Up to recent market events, it had been tending towards liberalization. The treasurer has to match various limited and unique “China-derived” treasury solutions with the capital structures of his China entities. He has to...
  • Navigating a Liquidity Crisis Effectively
    by Klaus Kremers
    Until 2007, debt had become very cheap and accessible. Most companies sharply increased their leverage. In Germany, for example, the net-debt-to-EBITDA ratio extremes moved from around 3 in 2002 to around 7 in early 2008. However, a downturn in company performance or an external financial crisis—where lending becomes scarce and borrowing expensive—can make this approach risky.
  • Payment Factories: How to Streamline Financial Flows
    by Chris Skinner
    During the past few years, banks and their clients have been consolidating their payments infrastructures into single, global platforms. Payment consolidation helps to overcome the issues of fragmentation between systems that have been set up over the years. For large international banks and businesses in particular, having duplicate systems in different geographies just does not make sense. As a result, international banks and companies have...

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