CASH MANAGEMENT. Cash Management. Utilization of Technology in Cash Management. AASBO Certificate Program. September 2016

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1 CASH MANAGEMENT AASBO Certificate Program September 2016 Cash Management 2 Effective cash management is more important today than ever before. This session will focus on effective cash management practices and the utilization of banking products and services for an more efficient business operations. How has banking activity changed over the year? Utilization of Technology in Cash Management 3 How do companies/people transact today? Are you using technology to: Maximize earnings Analyze your operations Streamline tasks and improve efficiency 1

2 4 What is 'Cash Management' 4 Cash management is the corporate process of collecting and managing cash, as well as using it for (short-term) investing. It is a key component of ensuring a company's financial stability and solvency. 5 Cash Management 6 Functions of Cash Management Cash management is the treasury function of a business, responsible for achieving optimal efficiency in two key areas: receivables, which is cash coming in, and payables, which is cash going out. Receivables Management When a business issues an invoice it is reported as a receivable, which is cash earned but yet to be received. Depending on the terms of the invoice, the business may have to wait 30, 60 or 90 days for the cash to be received. Staying on top of collections with an aging receivables report. Payables Management When a business controls its payables, it can better control its cash flow. By improving the overall efficiency of the payables process, a business can reduce costs and keep more cash working in the business. Payables management solutions, such as electronic payment processing, direct payroll deposit, and controlled disbursement can streamline and automate the payable functions. 2

3 Cash Management 7 Most of the receivables and payables management functions can be automated using business banking solutions. The digital age has opened up opportunities for smaller businesses to access the same large-scale cash management technologies used by bigger companies. The cost savings generated from more efficient cash management techniques easily offsets the costs. More importantly, management will be able to reallocate precious resources to growing the business Improve Your Operational Efficiency 8 Cash Receipts Procurement Disbursements A/P Payroll Administrative Services Developing a Cash Management Program 9 Objectives: Improve cash management efficiency Improve your operational efficiency Increase your investment income Provide benefits for your employees 3

4 How Do I Practice Good Cash Flow Management? 10 Cash management is simple. It involves: Knowing when, where, and how your cash needs will occur; Knowing the best sources for meeting additional cash needs; and Being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors. The starting point for good cash flow management is developing a cash flow projection. Smart business owners know how to develop both shortterm (weekly, monthly) cash flow projections to help them manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help them develop the necessary capital strategy to meet their business needs. They also prepare and use historical cash flow statements to understand how they used money in the past. 11 Cash Flow Forecast 12 Ensures Liquidly Days Cash On Hand Serves as Investment Tool Amount that is available for investment Length of time to hold investment Can identify problems Collections vs disbursements Budget projections 4

5 Cash Flow Analysis 13 Timing Considerations State aid is paid on 20th of each month What happens when it is late Impact of early payroll Look at weekly balances Local revenue collections When are taxes collected Property Taxes- Seasonal ( 15 th and 30 th ) Sales Taxes-Monthly- What date City Appropriation Cash Flow Analysis 14 Considerations-Revenue/Inflows Foundation Program ES-2 Property Tax /Sales taxes Disbursements/Outflows Payroll/Benefits (80 %) A/P schedule Bond Payments 15 5

6 Cash Flow Analysis 1 3,5 0 0, Cash Flow Chart 1 3,0 0 0, ,5 0 0, ,0 0 0, ,5 0 0, ,0 0 0, ,5 0 0, ,0 0 0, ,5 0 0, ,0 0 0, ,5 0 0, ,0 0 0, ,5 0 0, ,0 0 0, J u ly A ug. Sept. O ct. N ov. D ec. J an. F eb. M ar. A pr. M ay Jun e Bank Account Overview 18 Types of Accounts Depository Accounts Disbursement Accounts ( Clearing ) Investment Accounts 6

7 Sample Bank Structure 19 Sample Bank Structure 20 DEPOSITORY ACCOUNTS General Fund This is a major account for the Board where the majority of receipts will be deposited. This account will also receive ACH deposits from Federal and State agencies. Child Nutrition This is the receiving fund for all school lunchroom activities of the Board of Education. Deposits will be mostly in cash, but this account will also receive some ACH deposits. Capital Building Fund This is the receiving account on accounts for bond proceeds. These receipts will be by ACH or checks and be few in numbers. DISBURSEMENT ACCOUNTS Accounts Payable Account Transfers are made to this account from the depository accounts on a weekly basis to cover all checks written in accounts payable. Payroll Account Transfers are made to this account monthly or biweekly from the depository accounts to cover all payroll checks and direct deposits for payroll. Choosing Your Bank 21 Developing a banking relationship Look for a multidimensional institution Seek a bank that specializes in Public Funds relationship State of Alabama SAFE Program Location Identify banking institutions that will provide the highest quality of service at the lowest cost to the board Identify banks that are committed to technology and innovation Bid or negotiate your banking services 7

8 Collateralization 22 All deposits of the Board must be secured by pledged collateral in an amount greater than the highest balance during any month, or deposited with a Qualified Public Depository of the Security for Alabama Funds Enhancement (SAFE) Program, according to Sections 41-14A-2 through 41-14A-6, 41-14A-8 and 41-14A-9, Code of Alabama 1975, as amended

9 25 SAFE Program 26 SAFE Program 27 9

10 Choosing Your Bank 28 Cash Management Services Collection Services Disbursement Services Information Services Credit Services Fraud Protection Investment Services How Do You Pay for Bank Services? 29 Pay fees direct? Compensating balances to offset fees? Lower investment rate? When to Consider a RFP 30 Staffing Change Annual relationship reviews New technology Future Banking Needs Ensure competitive pricing and interest rates New Ideas Increased Risk (Credit rating Change or Litigation) 10

11 Components of Banking RFP 31 General Information Calendar Minimum Proposer Requirements Scope of Services Evaluation Criteria Any Special Contract Provisions Exhibit and Attachments Customize to fit your needs Scope of Services 32 Identify ways to improve procedures/services Compare services used by other boards Pre proposal conference Banking RFP 33 Forms and Instructions Clear and concise instructions Standardized bid forms Evaluation of Proposals Established criteria Disqualify incomplete proposals Highest quality service at competitive price 11

12 34 35 Understanding the Account Analysis Statement: 36 AAS is monthly invoice provided by the bank that delineates the services provided and compensation required to pay for these services. It is not a monthly bank statement. If you are not receiving an AAS, request one from your bank. 12

13 37 Helpful Hints 38 Cash Flow analysis is fundamental to managing district funds Understand your bank relationship to gain efficiencies and lower cost AAS identifies all of your cost for banking Consider RFP for negotiating for banking services One of your best resources is sitting right next to you RFP Banking Services Sample RFPs Electronic Resource Center AASBO Web Site 39 13

14 40 Safety First 41 Helpful Hints 42 Safeguarding of Assets- Safety Come First No reward for higher earnings, but public flogging for loss Always stay with investments with which you are familiar Treasury securities should serve as benchmark When in doubt ask or research Do not buy what you do not understand Do not buy any investment that yields less than its corresponding treasury Government guaranteed does not mean risk free When in doubt ask or research 14

15 Guidelines of Investing 43 Always buy every investment as though you will hold it until maturity Avoid investing all of your funds at once, especially if the environment is calling for an upward rate movement Stagger your purchases (dollar cost averaging) Never buy an investment expecting to sell it early Create and follow a cash flow forecast When in doubt DON T Account Analysis Statement Elizabeth Miller, CTP, Allison Eden, Regions Bank Account Analysis Statement Analysis Statement 101 The Analysis Statement is NOT a bank statement. It is the methodology for calculating your service charges based on the established fee structure and your volume. It is an invoice usually issued monthly that delineates the services provided and compensation required to pay for these services. The math behind it all Net Collected Balance x ECR x #ofdaysinamonth/ #ofdaysinayear= Service Charge How do you pay for your bank services? Do you pay direct fees? Does your account balance offset all of your fees? Do you earn interest on balances above the required balance threshold? 15

16 Account Analysis Statement A B A B Account Information Including analysis period, account number, account type and contact information. Average Balance Lists average ledger balance, float, average collected balances, etc. This section can also include the ECR. Account Analysis Statement D C C Service Detail Includes per item service charges, volume, rate, total amount and balance required to offset each service charge. D Balance Required = Service Charge x # of Days in Year / # of Days in Mo / ECR Account Analysis Statement E F G E Service Summary Lists average net collected balance, balance required to offset service charges and excess/ deficit balance. G Interest Paid or Service Charge Amount depending on account type, net collected balance and total service charge. F Rates Lists ECR and Interest rate (if interest bearing account type). 16

17 TYPES OF INVESTMENTS FOR SCHOOL DISTRICTS Treasuries Informal name for securities issued by U.S. Department of Treasury Treasury Bills (T-Bills) Short-term obligations one year or less Issued on discount basis Issued in 3-month, 6-month, one-year maturities Serves as benchmark for yields of other short-term, fixed income investments Treasury Notes Medium term obligations Maturities one to ten years Fixed face amount Specified maturity Specified coupon interest rate 49 Treasury Bonds Long-term obligations Maturities greater than 10 years Fixed face amount Coupon rate of interest Federal Agency Securities Agencies created by the federal government to support the credit needs of specific institutes or groups. Some are guaranteed by U.S. Treasury Some are supported only by the credit worthiness of the issuing agency (Federally sponsored) 50 Certificates of Deposit Time deposit with bank Specified term Must be secured Rate fixed or variable Repurchase Agreements (Repos) Board purchases securities from bank at specified interest rate and sells them back Open repo is used most often by governmental agencies Basis for daily rate (effective federal fund minus basis points) Collateralized by U.S. Government Securities GASB disclosure requirements 51 17

18 INVESTMENT POLICY WHY Formal written policy is vital for prudent investment management Gives clear guidance Communicates where the Board has chosen to go with their investment portfolio 52 Sources: Jeffry Flynn, The Art of Investing School District Funds, published by ASBO International. Rhett Harrell, Editor, Government Financial Management Report, Sheshunoff Information Services, Inc. Edmund A. Mennis and Leonard M. Matz, State and Local Government Investment Guide Series, Sheshunoff Information Services, Inc., Brian Quinn, PFM Asset Management LLC, Cash Management for School Districts Michigan ASBO Cash Management AASBO CERTIFICATE PROGRAM September