With the growing pressure on interest spread, banks are focusing their attention on the 'fee based' Services. The exponential growth in IT and Communications has helped banks in developing and delivering customer friendly products in the areas of Collections and Payments.
As we are all well aware, the fundamental objective of cash management is ‘optimization of liquidity through an improved flow of funds'. In today's highly competitive environment, where time is considered as money, deployment of staff to render basic routine tasks does not make economic sense.
As a sequel, cash management today is not what it used to be. Electronic banking, which began as a passive desktop access to bank balances, is emerging into complex processes f liquidity management through numerous techniques.
Almost all of the corporations in advanced countries are now planning to use the services of banks to help them collect payments on monthly bills they issue to consumers and other types of cash management services. According to the findings of a Study conducted by Killen and Associates the top 400 Canadian enterprises can save $23 billion annually by applying emerging electronic cash management strategies. The Killen Study, states that in 2005, $300 billion worth of electronic payments will be collected over e-billing networks, which is a mammoth extension of cash management services. Commercial banks in the Western countries realized the tremendous potential in providing cash management services to vastly improve their profitability. In a report titled ‘The Future of Wholesale E-Banking : The Portal' which was published by Celent Communications it was projected that by 2003, 40 per cent of the top 100 US banks will be offering advanced Internet portals to their business customers. In an urge to consolidate and expand customer relationships and to stay ahead of the competition, wholesale banks have turned to the next generation of personalized and uniform online Cash Management Services. The ultimate cash management solution as seen by many corporate is a fully centralized management of financial and commercial payments where intra-group companies have no external bank accounts, except a local account for petty cash.
[...] Challenges to Companies in Availing Technology-oriented Cash Management Services from Banks: - Corporates do face some challenges in putting in place new cash management structures. Analysts believe that companies will increasingly demand online real-time cash-management services. The commercial need for Internet delivery of cash management will be driven by the increasing number of businesses using the Internet and other networks Electronic Communication with a Bank The first challenge facing a treasury is how to communicate electronically with a bank, although this is often dictated by cost limitations, security concerns and the infrastructure peculiarities of different countries. [...]
[...] Courier Management IB Department, CO has made arrangement with Skypak Couriers for the pick- ups to be made from the Client's offices, wherever requested, across all the Operating Branch locations. IB will advise the Agency to arrange for the pick-up, wherever required and the copy of this letter will be sent to the branch also. Branch should monitor the pick-up and keep a strict vigil on the functioning of the Agency Branches need not make any payment to the Local Office of the Agency for these courier pick-ups. [...]
[...] Others have either a pool account or a cash credit account. In fact, one of the prime purposes of getting a CMS client is to get a Current Account through that client. Current Account funds are zero cost funds and hence always preferred by the bank. Consideration of Current Account Balances while pricing a client for CMS has always been a matter of debate. Discussions with different people gave different perspectives towards the issue. However, on analyzing the correlation between the collections and current account balances of the existing clients, the following results were obtained: A weak correlation ( 0.51 Although the correlation was positive, it was very weak ( 0.51 For the correlation to be strong, it should be at least after which a regression line can be drawn and the balances the customer might maintain can be anticipated. [...]
[...] The details of the new procedure, which will be brought into effect from 10th September 2001, are as under: CASE STUDY ON CASH MANAGEMENT SERVICES AT A BANK Collections Management:- Local Cheque Collection (LCC) - Available at more than 85 Locations. Other Locations can be added depending on assured volume of collections. Upcountry Cheque Collection (UCC) - Available at more than 800 Locations. Collections Outside Network - At locations other than above. Payments management:- Warrant Payment - At Par Payments for Dividend/ Interest / Refund Orders at more than 500 locations to choose from. [...]
[...] Cash Management is the family of Products and Services provided by the Bank to help the customers handle Their Account operations Their Sales Collections Their Supplier Payments Their account reconciliation Short term liquidity/ investments The main objective of CMS is to speed up the process involved in Collections and Payments (Remittances) and enhance the velocity of money. Cash management is the family of products and services provided by the Bank that help the customer handle : their account operations their sales collections their supplier payments their account reconciliation short term liquidity / investments Cash management products impact the efficiency of a customer's operating cycle Objectives Basic objective is to speedup the process involved in collections and remittances Enhance the velocity of money which inter-alia calls for speed, accuracy and efficiency of high order Manage cash flows, liquidity and ensure reduction in costs Conventional Banking Channels for collections & payments has the following drawbacks Locking up funds in transit - Enormous delays Strain on liquidity Uncertainties High borrowings - substantial costs Adverse effect on profitability Loss of reputation - image ;Loss of business Importance of Cash Management for a Corporate Entity Let me briefly touch upon the need to put in place a specialized cash management system by corporates. [...]
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