Page 159 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Working Capital Management

Notes By optimising the treasury operations and related risk management process, the companies can
reap significant benefits such as:

 Improve cash flows, enhance return or reduce interest expense.
 Put money on the table.
 Reduce excessive and unnecessary costs.
 Introduce more effective technologies.
 Enhance the utilisation of near cash assets.

 Better control and mitigate operational and financial risks.
 Streamline banking structure.
 Strengthen controls and procedures.

9.7.1 Treasury Risk Management

A few of the main focus areas of treasury operations are as follows:

1. Cash Flow-Receipts and Disbursements: Accelerating the collection of cash receipts and
mobilisation/consolidation of cash, improving effectiveness of lockboxes; cheque clearing,
credit card payments, wire transfer systems, and electronic commerce initiatives to optimise
cash utilisation. Design and operate effective and control oriented payment and
disbursement systems.
2. Bank and Financial Institution Relations: Assess global banking and financial institutions
relationships among themselves as well as with domestic ones and identify ways to
maximize the value of these relationships. Enhance the value received from banking and
financial products and implement more efficient processes and account structures to
strengthen global cash and treasury risk management. Review capital structure and
financing arrangements to maximise the utilisation of financial resources and minimise
their cost.
3. Cash Management Controls: Assess and improve controls to minimise exposure to fraud
and other such risks. This also strengthens and supports internal control initiatives.

4. Cash Forecasting and Information Reporting: Improve the reliability, accuracy and
timeliness of data from domestic and international cash forecasting models and processes;
and improve the effectiveness of treasury information reporting.
5. International Cash Management: Optimize global cash and treasury risk Management by
improving Foreign Exchange (FX) management system.
6. FX and Interest Rate Management: Evaluate foreign exchange and interest rate practices
and strategy to identify measure, manage and monitor these activities. Also, assess
opportunities for improvement.
The two main focus areas of treasury operations are:
(i) Fund management, and

(ii) Financial risk management.
The former includes cash management and asset liability mix. Financial risk management includes
forex and interest rate management apart from managing equity and commodity prices and
mitigating risks associated with them.

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