The 10 best tips to manage Cash according to Sabbir Rahman, former Head of Treasury for ASOS

Tip #1 : Attention to cash flow forecasting methods of highly probable forecasted transactions in a consumer business

At ASOS plc, we sold fashion products to a global consumer base. As with any consumer business, we collected cash via a portfolio of acquirers, ranging from credit and debit card acquirers to BNPL (buy now pay later) acquirers (the number and names of acquirers are not shared for confidentiality reasons). The cash was collected in a range of currencies and represented a critical source of funding to meet the company’s variable and fixed cost bases, including the payment of stock and non-stock suppliers, salaries, shipping, taxes and a range of other expenses. Having visibility over the future amount of cash that would be received on a daily basis was key to understanding how the company would manage cash in the most cost-efficient manner.Which means whether treasury should :

• move cash between legal entities,
• sweep cash into operational treasury accounts,
• liquidate money market investment or convert cash between currencies,
• pay various financial obligations as they came due.

To optimise the visibility of cash inflows generated from consumer sales, treasury engaged in data driven forecasting using historic sales cash-receipt data to generate forecasts of future sales cash receipts by leveraging a quantitative linear regression forecasting methodology adjusted for seasonality in the business.
Concurrently, the commercial finance team produced more qualitative based forecasts of global consumer sales, incorporating macroeconomic and microeconomic trends into their forecasting process, such as sector growth rates, geopolitical divers and global and regional macroeconomic conditions. The business would temper one forecasting methodology against the other to formulate the most rounded and well informed forecasts possible. Forecasting contractual cash flows is much easier, as they can be considered 100% probable to materialise. If forecasting of “highly probable forecasted transactions” transpires to be materially incorrect, the consequence could be incorrectly sized FX hedges and unexpected cash deficits and surpluses around the group.

Tip #2 : Investing cash effectively for a cash rich business

The primary objective for any treasury should beto optimise yield whilst minimising credit risk of the investment portfolio.Money market fund products generally offer daily liquidity and competitive returns, but yields can be further enhanced if cash is invested for longer tenors in money market deposits as deposit taking institutions will often reward longer term deposits with higher yields. This works in an upward sloping yield curve environment. Yields can be enhanced further still by investing in structured deposits, by incorporating both tenor and market risk elements into the deposit’s features. Examples are FX linked dual currency deposits, FX linkedwedding cakedeposits, interest rate linked callable range accrual deposits and equity linked reverse convertible structured products. These structured products may reside outside of the company’s treasury policy, risk appetite and may not meet hedge accounting requirements, if the company is publicly listed and that is important to them. Structured products can be :

• capital fully protected , where 100% of the capital invested is protected;
• capital soft protected , where some of the capital is protected, such as 90%; 
• capital fully at risk, where 100% capital is at risk; 
• or leveraged, where the depositor could lose more than 100% of the initial capital invested. 

Structured products are less commonly used by corporates when investing cash, but some treasuries have optimised yields with their use.

Tip #3 : The need for a TMS with API connectivity to bank accounts for real or near-real time account balance visibility

Having real-time or near-real-time visibility into a company's bank accounts is essential for effective cash management. This can be achieved through theuse of a Treasury Management System (TMS) that has Application Programming Interface (API) connectivity to bank accounts. A TMS can provide a central platform for all cash management activities, allowing treasury teams to view and manage cash across multiple accounts and currencies. In addition to providing visibility into cash balances and transaction activity, a TMS can also provide functionality for cash forecasting, liquidity management, and bank fee analysis. This can help treasury teams optimize their cash position, reduce borrowing costs, and minimize bank fees.

Tip #4 : Managing DSO, payment terms and collections efficiently

It is essential to manage payment terms effectively to ensure timely collections, minimise Days Sales Outstanding (DSO) and reduce the risk of bad debts. Clear payment terms should be communicated to customers upfront, and invoices should be promptly issued with follow-up reminders sent as necessary . Timely collections should also be prioritised to improve cash flow, which can be achieved by offering discounts for early payment or implementing an automated payment system.

Tip #5 : Streamlining banking relationships

Corporate entities often have multiple banking relationships, which can lead to fragmented cash management and increased banking fees. Streamlining banking relationships can help optimize cash management, reduce fees, and improve visibility. Consolidating banking relationships with a few core banks can also provide negotiating power and better access to funding sources.

Tip #6 : Implement a robust system for managing DPO and payments

To ensure that cash is not being used inefficiently or lost through errors or fraud, it is important to have a strong system for managing payments. This can include having clearly defined processes for approving and releasing payments, using secure payment methods such as digital payments or wire transfers, and regularly reviewing payment records to identify and resolve any issues. Supply chain finance solutions can be evaluated and implemented from bank and FinTech providers to minimise effective Days Payable Outstanding (DPO) whilst allowing existing suppliers to avail of prevailing payment terms.

Tip #7 : Implement a 13-week cash flow forecast

To effectively manage cash, it is important to regularly monitor cash flow and adjust strategies accordingly. Oftentimes a 13-week cash flow forecast is requested by private equity owners of their portfolio companies, or creditors of companies facing periods of financial distress to :

• protect their debt and equity investments,
• ensure that their investee companies can meet their financial obligations as they fall due, 
• and recommend corrective action upon investee companies when necessary.

Tip #8 : Perform regular and timely bank reconciliations

Reconciling bank accounts involves comparing the company's records of transactions with the bank statement to ensure that they match. This is important for identifying discrepancies and errors , such as missing or duplicate transactions, which can lead to inaccurate cash balances and potentially result in financial losses or compliance issues. By conducting bank reconciliations on a regular basis, preferably daily, and promptly investigating and resolving any discrepancies, companies can maintain accurate cash records and ensure that their financial reporting is reliable and compliant with regulatory requirements. Additionally,automating the reconciliation process through the use of software tools or outsourcing the task to a third-party provider can help streamline the process and reduce the risk of errors.

Tip #9 : Implementing effective internal controls

Strong internal controls are necessary to prevent fraud and ensure accurate cash management. This includesestablishing clear cash handling policies , segregating cash management responsibilities, and regularly reviewing and reconciling bank statements and cash balances.

Tip #10 : Business as usual cash and liquidity reporting

Once all the necessary systems, processes and controls for cash management have been implemented, it is important to establish a process for regular cash and liquidity reportingThis includes daily, weekly, and monthly reporting of cash positions, cash inflows and outflows and forecasting accuracy. The reports should be standardised, easy to interpret, and provided to all relevant stakeholders on a timely basis, such as FP&A, the Group FD and CFO. Regular reporting ensures that all relevant stakeholders are aware of the current cash position, and any issues or concerns can be addressed promptly. It also helps identify trends and potential risks, allowing for proactive management of liquidity.

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