Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Sep 2016
Copyright 2015 Tech Mahindra. All rights reserved.
requirements
Purchases, payment of dividend and taxes
Precautionary Motive
Speculation Motive
Cash Management
Profits are always considered as a
Reporting
and MIS
FX
Management
Collections
Working Capital
Management
Trade Finance
Liquidity
Management
Working Capital
Management
Payments
Companys cash position is said to be the better indicator of the financial health
of the company, rather than profit and loss statement. Knowing the cash position is
therefore very crucial for business for following
Forecast when, how, and where cash needs may arise
Determine which would be the best source for additional cash needs
Manage the long term and short term cash flow transactions
efficiently
Cash Management A
Corporates Basic Need
Storyboard 1
Tom starts a Company First Stop Auto Parts, which produces new age designer Auto
Interiors and the 4-wheeler, LMV, SUV and 2-Wheeler accessories and components .
He envisages to build a native brand for the Auto Accessories and targets the South
East Asia market for his products to be sold. He establishes his business out of his
native country Singapore
Tom
His Company
Products
Storyboard 2
To run his business, Tom needs to do the following on a day in and day out basis
Source Raw Materials from the Suppliers
Use resources like electricity, waged-workers, telecom services etc
Sell the finished products to wholesalers
Raw Materials
Sourcing
Resources and
Staff
Sell the
Finished Goods
8
Storyboard 3
For the smooth functioning of the business, Tom starts a relationship with an international
bank ABC Bank in Singapore
ABC Bank assigns a new relationship manager Laura to assist Tom to fully utilize the Cash
Management services provided by ABC Bank
The Companys
Bank
The Appointed
Relationship
Manager
Corporate
Customer for
the Bank
Customer On boarding
ABC bank classifies First Stop Auto Parts as sole proprietor business. Laura gets a CASA
account with OD limits opened for First Stop Auto Parts and on boards the company to the
ABC Banks Corporate Online Portal to conduct all the relevant transactions and manage the
funds.
Laura explains to Tom that ABC Banks corporate online portal shall act as a one stop
platform for subscribing and monitoring all the Cash Management needs Payables,
Receivables, Liquidity Management related requirements of First Stop Auto Parts.
Corporate
Customer for
the Bank
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Fulfils KYC
Norms
10
Customer On boarding
ABC bank classifies First Stop Auto Parts as sole proprietor business. Laura gets a CASA
account with OD limits opened for First Stop Auto Parts and on boards the company to the
ABC Banks Corporate Online Portal to conduct all the relevant transactions and manage the
funds.
Laura explains to Tom that ABC Banks cash management portal shall act as a one stop
platform for subscribing and monitoring all the Cash Management needs Payables,
Receivables, Liquidity Management related requirements of First Stop Auto Parts.
Corporate
Customer for
the Bank
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Fulfils KYC
Norms
11
Beneficiary
Management for
Payables
Common Corporate
onboarding
Payment Transaction
Initiation through
form or upload
Audit Trails
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Transaction status
updates and
dashboards
Reports to enable
faster reconciliation
for corporates
12
13
14
Sellers
Bank
Seller
Deposits
Payments
Buyers
Bank
Buyer
The above is simplified diagram for both cash and non-cash transactions. Cash moves from the buyers
bank to sellers bank through face-to-face exchange in the market. If a buyer uses a non-cash method of
payment, payment information instead of cash flows from the buyer to the seller.
15
Payments
First Stop Auto Parts has many suppliers and service providers
Steel, Plastic fabrics, PVC and other finishing materials from a trader in UK
Leather , Primer and Paints from a trader in India
Other ancillary tools and machinery parts from a trader in SG
also has outsourced employers from a Service Provider in SG, who work along with the
First Stop Auto Parts , permanent staff force
First Stop Auto Parts has to make the payments to
All the suppliers for the raw materials sourced for its manufacturing
It has to pay for the resources being used like electricity, telecom bills etc
It has to pay the wages for the employees working for it
Pay for
Employee
Salaries
16
Payments
First Stop Auto Parts has many suppliers and service providers
Steel, Plastic fabrics, PVC and other finishing materials from a trader in UK
Leather , Primer and Paints from a trader in India
Other ancillary tools and machinery parts from a trader in SG
also has outsourced employers from a Service Provider in SG, who work along with the
First Stop Auto Parts , permanent staff force
First Stop Auto Parts has to make the payments to
All the suppliers for the raw materials sourced for its manufacturing
It has to pay for the resources being used like electricity, telecom bills etc
It has to pay the wages for the employees working for it
Pay for
Employee
Salaries
17
Payments (Contd..)
Broadly any payment process will include
Payment
Initiation
Payment
Authorisation
Clearing
Settlement
Payment Initiation - This activity is performed by the Customer. Banks enable the provision
to initiate the payments from various channels/ modes
Payment Authorisation This activity will involve authorisation from the Customer and the
Bank ( for Compliance Checks. Sufficient Balance etc)
Clearing - Processing or transfer of a payment instruction from a payer bank to payee bank
according to predefined rules and operating procedures. It is a term used to refer to the
process of transmitting, reconciling and in some cases confirming payment orders before
settlement.
Settlement - It is the actual transfer of funds between the payer's and payee's bank.
Settlement discharges the obligation of the payer bank to the payee bank in respect of the
transfer. Settlement that is irrevocable and unconditional is described as final settlement.
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18
Payments
RTGS
ACH
Cross Border Transfers
On-US/Book Transfers
Based on the Clearing and the Settlement Mechanisms the above distinction
has been made
19
2
MEPS + (RTGS)
First Stops Bank
Credit Notification
Received SG Tools
SG Tools Bank
4
SG Tools
Ltd.
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RTGS Y- Copy
RTGS V - Copy
21
RTGS L- Copy
RTGS T- Copy
1.
2.
3.
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While it is not a necessary function of a Central Bank to operate and maintain the
Systems for Clearing and Settlement / a Customer Payment facilitator, in many countries
Central Banks are maintaining and operating the RTGS Systems directly or indirectly. The
Up time and the down time for the RTGS Systems are Crucial and have to be maintained
without any lapse.
Beneficiary Banks
Optimum utilization of the Liquidity available with the Central Banks. Excess liquidity to
be monitored and utilized accordingly
Not exposed to any settlement risk, as the Customer Credit is provided once the funds
are covered in the Central Bank books
Returns are processed on a near real time basis
Beneficiary
The Customer will receive detailed alerts for the credit received
24
While it is not a necessary function of a Central Bank to operate and maintain the
Systems for Clearing and Settlement / a Customer Payment facilitator, in many countries
Central Banks are maintaining and operating the RTGS Systems directly or indirectly. The
Up time and the down time for the RTGS Systems are Crucial and have to be maintained
without any lapse.
Beneficiary Banks
Optimum utilization of the Liquidity available with the Central Banks. Excess liquidity to
be monitored and utilized accordingly
Not exposed to any settlement risk, as the Customer Credit is provided once the funds
are covered in the Central Bank books
Returns are processed on a near real time basis
Beneficiary
The Customer will receive detailed alerts for the credit received
25
2
G3 Bulk/eGIRO
First Stops Bank
Credit Notification
Received SG Paints
3
SG Paints Bank
4
SG Paints
26
For Bank
(Credit)
Amount
Time
Citibank
ABC Bank
SGD 5,000,000
0910 hrs
Citibank
ABC Bank
SGD 2,000,000
1014 hrs
HSBC
Citibank
SGD 6,000,000
1142 hrs
Citibank
ABC Bank
SGD 3,000,000
1228 hrs
ABC Bank
Citibank
SGD 4,000,000
1453 hrs
ABC Bank
Citibank
SGD 5,000,000
1756 hrs
Multilateral Netting
only one transaction at
the end of each period
always needs a clearing
house
/
central
institution
27
Cheques
Tom mentions to Laura that some of the suppliers, do not want the remittances to
be made via electronic mode, but have requested for the remittances via Cheque.
Hence Tom requests for a Cheque Book from ABC Bank.
Laura provides an alternative to Tom; Instead of First Stop drawing Cheques one
by one for all the Suppliers and sending the same to the Suppliers, the details of
Payee Name, Payee Account Number and Transaction Amount can be entered in
the Corporate Internal Banking Portal
Either ABC Bank can print these Cheques with the Authorized Signature and send
the same to the individual Payee OR First Stop can opt for an Offsite printing
where the Cheques will be printed in the First Stop preferred location, from
where First Stop can dispatch the Cheques.
Advantage of using the Corporate Internet Banking for printing the Cheques are
that ABC will capture the Cheque Details using specific systems like Paybase and
when the Cheque is submitted for the Claim, fraud check or any other Sanity
Check will be performed basis the data already stored with ABC. This will also
ensure easy reconciliation for First Stop; Specific reports for the same can be
provided to First Stop by ABC Bank
Fist Step
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ABC Bank
Cheques (Contd)
29
Cheque Returns
When a Cheque ( SGD 1000) is deposited by the Payee into his bank, the
bank gives forwarded date credit to his account for SGD1000. This offset
is dependent on the float days
Depending on the Clearing Houses rules, the cheque could be
truncated(i.e. sent as image), or physical cheque movement or OCR
based feed plus physical movement of Cheques needs to be sent to the
clearing house
At the Clearing House the Cheques are sorted by the Drawee Bank and
the accounting entries are posted on a net basis
The Drawee bank can examine the Cheque details and identify any
deficiencies (like Signature mismatch or account balance insufficiency)
If the Cheque needs to be returned , then the details are sent back to the
Clearing house which posts the Counter Balancing entries
The Payees bank reverses the forward date credit to the payees account
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31
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59:
70:
71A:
PAY/001
CRED
041004USD1500,
LILY PHILIPS
TALSTRASSE 101
8022 ZURICH
/98765430771924764
JOHN PHILIPS
42ND STREET
NEW YORK, NY 10022
/RFB/EXP.11/04
SHA
33
SENDER'S BIC :
MT :
RECEIVER'S BIC :
20:
23B:
32A:
50K:
59:
70:
71A:
UBSWCHZH80A
103
CITIUS33
PAY/002
CRED
041004CHF2600,
LILY PHILIPS
TALSTRASSE 101
8022 ZURICH
/98765430771924764
JOHN PHILIPS
42ND STREET
NEW YORK, NY 10022
/RFB/EXP.11/04
SHA
34
MT 103 Customer
Credit Transfer
Engine
Components
Supplier
Raw Material
Suppliers Bank
Dr. CHAPS Clearing Mirror A/C
Cr. Suppliers Account with CITI
MT 103 Customer
Credit Transfer
Engine
Components
Supplier
Raw Material
Suppliers Bank
Dr. CHAPS Clearing Mirror A/C
Cr. Suppliers Account with CITI
rates that may be better than Sheet Rates with Segment level margins
The Treasury Desk will book individual FX deals
The Payments Operations team may also deal with the Treasury directly on behalf of the
Customers deal with the Treasury team
37
38
MT 910 Confirmation
for Nostro Credit with
GBP 1000
4
MT 910 Confirmation for
Nostro Credit with SGD
2000
Citibank UK
Sender
Receiver
OUR
Charges
are borne
by the
Sender
40
Sender
Receiver
BEN
Charges
are borne
by the
Beneficiary
or Creditor
SHA
Charges
are borne
by the
Payee and
Payer both
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and finances . The number of remittances being made by First Stop increases on a day to day
basis.
Tom speaks to Laura to discuss on the manual effort being put by the First Stop employees for
creating these remittance instructions over web.
Laura advices Tom to migrate First Stop from a ABC Banks Web Customer to H2H Customer.
The H2H solution will provide direct connectivity between the bank and the ERP system
without the need to type the payments manually to the Web Interface
First Stop can either opt for using SWIFT Message MT101 or a Pain.001 format or any be-spoke
file uploads via SFTP for making these remittances. All types of payments can be initiated as a
single file and the instruction can be given as one shot. Future Value dated transactions can
also be uploaded, which will be scheduled by the ABC Banks Systems on the appropriate day
Cross Border
Cashier Order/
Cheque
Faster Payments
FCY DD
Book Transfer
ACH Clearing
RTGS Clearing
Payment Initiation
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Cash Management
Receivables/Collections
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48
Receivables/Collections
First Stop has grown over a period of time and has finished goods delivery being made in SG ,
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Receivables/Collections (Contd..)
Laura explains to Tom , ABC Bank being a leader in the Cash Management services, provides
various flavors of the Collection Products for the Corporates
Domestic Collections
International Collections
Lock Box Collections
Electronic Collections
Collections/
Receivables
Paper Based
Domestic
Collections
LockBox
Collections
Electronic
International
Collections
Direct Debits
Inward
Remittances
Over the
Counter Cash
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50
Cheques, First Stop instead of going for a plain Domestic Collection model, where the
Customers have to deposit the individual Cheques into First Stop Account ; First Stop should
opt for a Lockbox collection model.
As part of the Lock box collection model, the First Stop Customers can deposit the Cheques to
a Lockbox /PO box and the bank will process the Cheques deposited , Collect the amount
from various banks through the domestic clearing and Credit the amount to First Stop Account
with ABC Bank.
The process is reverse of the earlier scenario in which the First Stop was the Payer
2
3
4
1
AA is satisfied
with the
conditions and
makes an
immediate
payment of AUD
100000 and
agrees for a 90
day draft for AUD
50000
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3
ABC Bank (Remitting Bank) sends
the document to the Collecting
Bank , NAB . NAB is the banker for
Australian Automobiles
NAB sends an
Acknowledgement as MT410
to ABC Bank that documents
have been received
4
NAB Passes on the documents to
Australian Automobiles
52
Australian Automobile makes an immediate payment of AUD 100000 to First Stop via its bank
NAB and also agrees for the 90-day draft for the remaining amount of AUD 50000
1
AA makes a
payment of
AUD 100000
53
remitting bank and actual financial transfer is initiated as MT202 by the collecting
bank via the remitting banks / collecting banks currency correspondent
Different scenarios might arise in the interim. The Importer (here AA) does not pay
its bank (the collecting bank NAB) the remaining amount either due to dispute or
lack of funds or any other reason. In such a case a MT 416 (Advice of Non-Payment/
Acceptance) is generated and sent by the collecting bank to the remitting bank
The Importer and exporter may also negotiate and agree on an amended terms
and conditions . In this case the remitting bank sends an MT430 (Amendment of
Instructions) to the collecting bank , which is acknowledged via MT410 and
accepted via MT412
If no response is received from the collecting bank a tracer , MT 420 is sent by
the remitting bank to the collecting bank, which is responded with the a MT 422
( Advice of Fate)
54
Cash Letters
A Cash Letter covers multiple documents (in a particular currency) can be sent by a bank to its
3
Sends the documents for
collection
55
Inward Remittances
Inward remittances are nothing but the direct incoming payment instructions hitting the First
Stops Account with ABC Bank. These inward remittances can either be a domestic payment or
a cross border payment. With the BPAY services being exposed by the local clearing houses,
such inward remittances as part of collection is getting more common
5
ABC either credits the
First Step CASA account
directly or pools in such
BPAY in a separate
collection account for
ABC and sweeps on a
agreed interval to First
Steps CASA Account
56
Direct Debits
A direct debit or direct withdrawal is an instruction that a bank account holder gives to his or her bank to collect an amount directly
from another account. It is also called pre-authorized debit (PAD) or pre-authorized payment (PAP).
For contracts with the High Service Franchises , Laura recommends Tom to get them signed up for direct debit mandates for the
8
Credit Amount received by
the ABC Bank
9
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58
Liquidity Management
Liquidity management techniques broadly fall into two main groups, depending upon the method
used to consolidate balances:
Physical balance consolidation:
Cash concentration, also referred to as zero balancing, sweeping, target balancing or physical cash
pooling.
59
Working Capital needs at the Right Place, at the Right Time and at the Right Cost;
Liquidity Management Services provided by the banks are always in tandem with the Account
Services , Collections and Payments
The core value propositions provided to a corporate by the Liquidity Management Services are
as below
Visibility
Liquidity Efficiency
Control and access to Internal
Funds and reducing
dependency on external
funding
Optimal utilisation of internal
liquidity and create surplus for
Investments
Operational Efficiency
View Consolidated Cash
Positions
Administrative Tracking of
Intercompany loans
Financial Efficiency
Increase Interest Income
Investment Opportunities
Control
Optimization
60
Story Board 4
First Stop has grown into a multinational organisation propelled by both organic growth and a
series of recent takeovers in the APAC markets . Now First Stop has different branches across
Singapore, Malaysia , India , Australia and New Zealand
It also has grown into more product/service lines, which has been incorporated as subsidiaries
or group companies of First Stop
It has its Operations and Purchasing departments for all the subsidiaries centralised in SG and
partly in India , while its sales and invoicing is spread across multiple geographies
Each one of these divisions/subsidiaries maintains separate local accounts for ease of
maintenance, recon and auditing
In most of the geographies First Step has relationship with ABC Bank and in some regions some
other private banks
Optimum Auto
Design ( IN)
Operations
Sales &
Invoicing
Magnus Highway
Service (MY)
Sales &
Invoicing
Premium CAB
Services (ID)
Sales &
Invoicing
Operations
Purchasing
61
other Banks are always Positive from a Cash Position , still First Step is ending up
paying huge interests on its Purchases account in SG and India , as many a times,
the purchases account gets overdrawn
Laura suggests Tom to go for Sweeping Structure one of the LM Techniques , basis
which the debit in the Purchase Account will follow the below procedure or steps
Debit the Purchase Account for the available balance
If debit amount is not met against the balance available in the Purchase Account
in SG , sweep in as per the sweep structure defined for accounts
If debit amount is still not met then go for the Intra Day OD limit
If the debit amount is still not met then go for the normal Credit Limit
If debit amount is still not met , utilise the limits earmarked for in other group
accounts
If the debit amount is still not met, then reject the transaction or park it in any
manual queue for Relationship Manager to take the action
Tom asks for different LM Techniques available with ABC Banks so that he
can discuss and decide with the treasury team
62
Domestic Sweeping
Cross Currency
Single Currency
Notional Pooling
Interest Optimisation
Cross Border
Sweeping
Multi Currency
Notional Pooling
Laura also explains that the kind of LM technique that is allowed in a market is
highly driven by the following parameters
Corporate Business
Model
Corporate Treasury
Model
Tax Impacts
Banks Capabilities
in the region
Market Practice
Pool Locations
Regulations
63
Sweeping Physical/Cash
Physical/Cash Sweeping
Header Account in
Bank A
Header
Account
Sub Acc 1
Sub Acc 2
Sub Acct. A in
Connected Branch
of Bank A
Transfer through
Local Clearing
Transfer through
SWIFT (MT 940/
MT101)
For Multi Bank Sweep Facility the , the third party bank should support
The Third Party bank should support MT940/MT942/MT950 statements (receipt
and remit) or any local clearing equivalent for balance determinations
The Third Party bank should support sending and receiving MT101 message or
equivalent local clearing messages
The Third party bank should support MT103 or equivalent Local clearing message
64
Sweep Parameters
Direction of Sweep
Limit Management
Back Valuations
Reports
65
Zero Balancing
Sweep Example
Master Account
Sub Account A
Sub Account B
Sub Account C
Available Balance
before Sweep
+ 10,000
-3000
+4000
-1000
- NA-
+ 3000 ( From
Master Acct.)
- 4000 ( To Master
Account)
Available Balance
After Sweep
+10,000
66
Target Balancing
Example
Master Account
Target Balance
Sub Account A
Sub Account B
Sub Account C
NA
2000
3000
Available Balance
before Sweep
+ 10,000
3000
+4000
-1000
- NA-
-1000( To Master
Acct.)
- 4000 ( To Master
Account)
Available Balance
After Sweep
+11,000
2000
3000
67
Notional Pooling
Notional Pooling
Header Account
(USD 500)
Header
Account
Sub Acc 1
Sub Acc 2
Sub Acct. A
(USD 300)
Notional Pooling is the process of offsetting the Credit Balances in some of the
accounts against the overdrawn balances in some of the accounts without
physically moving the funds
Good for corporates who have decentralised operation model with decentralised
treasury and want to take the benefit of Sweeping without comingling the amount
available in each of the subsidiary accounts
High Regulated
Will depend on Tax Rules , Transfer
Pricing norms in the Country
Credit Approvals
Netting
In general, netting means to allow a positive value and a negative value to cancel each other out. In this
method of reducing credit, settlement and other risks of financial contracts by aggregating (combining)
two or more obligations to achieve a reduced net obligation.
Benefits of Netting
Netting potentially address four major risk in financial area, there are
Below are few of the types of netting in context of the credit risk
Payment Netting
o Bilateral and Multilateral Netting
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Bilateral netting
A owes B USD 100
B
B owes A USD 200
B
B pays A USD 100
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Multilateral Netting
Bilateral Netting is between two parties.
Multilateral Netting involves netting among more than two parties, using a clearing-house or central exchange.
Before Netting
Co.A
After Netting
Co.B
Co.A
Co.B
Netting
Center
Co.C
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Co.D
Co.C
Co.D
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Thanks
74