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 consumers around the world. As with any consumer business, we raised cash through a portfolio of acquirers. These ranged from credit and debit card acquirers to “Buy Now Pay Later” acquirers. The number and names of acquirers are not disclosed for confidentiality reasons. The money was collected in various currencies and represented an essential source of funding to meet the fixed and variable costs of the business. These included payments to stock and other suppliers, salaries, shipping costs, taxes and a host of other expenses. It was essential to 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.. In other words, whether cash flow 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.

in order to pay the various financial obligations as they fall due.
Concurrently, the the treasury department used forecasts based on several data points. These are the historical sales data used to generate forecasts of future sales. This is done using a quantitative forecasting methodology based on adjusted linear regression, to take account of the seasonality of the business. At the same time, the Commercial Finance team has produced more qualitative forecasts of global consumer sales, incorporating macroeconomic and microeconomic trends into their forecasting process. These include sectoral growth rates, geopolitical diversities and global and regional macroeconomic conditions. The company tempers one forecasting methodology against the other in order to formulate the most comprehensive and informed forecasts possible. It is much more Forecasting contractual cash flows is much easier, as they can be considered 100% probable to materialise. If the forecast of highly probable transactions proves to be materially incorrect, this could result in incorrectly sized currency hedges and unexpected cash deficits and surpluses within the Group.

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

The primary objective of any cash position must be tooptimise returns while minimising the credit risk of the investment portfolio. Money market funds generally offer daily liquidity and competitive yields. However, returns can be further enhanced if cash is invested for longer periods in money market deposits. Indeed, deposit-taking institutions often reward longer-term deposits with higher yields, resulting in a rising yield curve. Yields can be further enhanced by investing in structured deposits, incorporating both duration and market risk elements into the characteristics of the deposit. Examples include exchange-rate-linked dual currency deposits, "wedding cake"These structured products may be outside the company's treasury policy, risk appetite and may not meet hedge accounting requirements if the company is listed on a stock exchange. These structured products may be outside the company's treasury policy, risk appetite and may not meet hedge accounting requirements, if the company is listed and this is important to it. Structured products can be :

• capital fully protected guaranteed, i.e. 100% of the capital invested is guaranteed;
• capital soft protected guaranteed, i.e. part of the capital is guaranteed, for example 90% ; 
• capital fully at riskIn other words, 100% of the capital is at risk; 
• or leveraged, meaning that the depositor can lose more than 100% of the initial capital invested. 

Structured products are less commonly used by companies when investing cash, but some treasuries have optimised their returns through their use.

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

Real-time or near-real-time visibility of a company's bank accounts is essential for effective cash management. This visibility can be achieved usinguse of a cash management system (Treasury Management System) with a application programming interface (API) to communicate with bank accounts. A TMS can provide a central platform for all cash management activities, enabling teams to view and manage cash across multiple accounts and currencies. In addition to providing visibility of cash balances and transaction activity, a TMS can also provide functionality for cash flow forecasting, liquidity management and analysis of bank charges. 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 at the outset, invoices issued promptly and follow-up reminders sent if necessary. It is also important to give . Timely collections to improve cash flow, which can be done by offering early payment discounts or setting up 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 used inefficiently or lost through error or fraud, it is important to have an strong system for managing payments. This can include clearly defined processes for approving and making payments, and the use of secure payment methods such as digital payments or electronic transfers. But also regular review of payment records to identify and resolve any issues. Supply chain finance solutions can be evaluated and implemented by banking providers and FinTech to minimise the actual number of days unpaid (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 monitor it regularly and adapt strategies accordingly. Often, owners of private equity funds or creditors of companies facing periods of financial difficulty request a 13-week cash flow forecast in order to :

• protect their debt and equity investments,
• Ensure that the companies in which they invest 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

Bank reconciliation involves comparing the transactions recorded by the company with the bank statements to ensure that they match. This operation is important for identifying discrepancies and errors such as missing or duplicate transactions, which can lead to inaccurate cash balances and potentially financial losses or compliance issues. By performing bank reconciliations regularly, preferably on a daily basis, and quickly reviewing and resolving any discrepancies, businesses can maintain accurate cash records and ensure that their financial reporting is reliable and compliant with regulatory requirements. In addition, theautomate the reconciliation process by using software or outsourcing the task to a third-party supplier 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. These includeestablishing clear cash handling policies cash handling, separate cash management responsibilities and regularly review and reconcile 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 put in place, it is important to establish a regular cash and liquidity reporting process. This includes daily, weekly and monthly reports on cash positions, cash inflows and outflows and forecast accuracy. Reports should be standardised, easy to interpret and provided in a timely manner to all relevant stakeholders, such as FP&A, the Group Finance Director and the CFO. Regular reporting ensures that all stakeholders are aware of the current treasury situation and that any issues or concerns can be dealt with quickly. It also helps to identify trends and potential risks, enabling proactive cash management.

Do you want to apply these tips but don't know where to start? Our team will guide you through the key issues of Cash management. To find out more about our training courses, click here.