THEME : Financial Management
TITLE : Treasury Management Versus Cash Management
AUTHOR :
1. Leire San José
University of Basque Country
E-mail: leire.sanjose@ehu.es
2. Txomin Iturralde
University of Basque Country
E-mail: txomin.iturralde@ehu.es
3. Amaia Maseda
University of Basque Country
E-mail: amaia.maseda@ehu.es
Year Published : 2008
INTRODUCTION
Treasury functions began to be based essentially on a financial cash management or liquidity management perspective. More recent advances (development of new information and communication technologies, emergence and use of new financial instruments and an approach to business focused on increasing the value of organisations in all areas) have favoured the development of new treasury management functions, and increased the importance of treasury departments within companies. In this way, now the techniques and instruments required for optimum development are available.
The functions now linked to treasury management extend beyond the mere control of monetary
flows and positions. Exchange-rate and interest-rate volatility in the wake of the internationalisation deregulation of currency markets, the need to increase control of credit risk in increasingly competitive markets and the appearance of new financial instruments have forced treasury management to become more forecast-based in its actions, with more emphasis on the management of investments, treasury deficits and different financial risks.
PROBLEM
In this terminology of cash management literature this term could brings together various functions associated with short-term financial flow management: liquidity management, banking management, management of treasury surpluses and deficits and financial risk management; it is a broader concept than the mere management of payments and collections.
PURPOSE
In this context, our objective is to provide empirical evidence for the definition of cash management by drawing up an explanatory model.
DATA AND RESEARCH METHOD
Sample
This study was conducted on Spanish firms with more than 10 employees. The sample was selected randomly using random number tables after listing the population in alphabetical order, with no replacement of individuals. 625 companies were selected, of which only 501 (80%) responded.
Questionnaire
An 11-item questionnaire was used to measure the three key constructs identified. The questions are presented via a Likert type scale
Factor analysis was used to develop a model that can explain cash management. confirmatory factor analysis was used to show the validity of the constructs arising from those deductions.
RESULT AND ANALYSIS
Basic cash management, which includes three levels: liquidity management (short-term treasury forecasts, at least monthly, establishment of an optimum cash level, optimisation of liquidity), operational management (monitoring and optimisation of the purchase-payment circuit, monitoring and optimisation of the sales-cash circuit), and banking management (monitoring of banking positions at the value date, day-to-day control of banking positions.
Advanced cash management, which also includes three levels: investment management (maximisation of returns on treasury surpluses), financial management (minimisation of costs of short-term borrowing), and risk management (coverage of interest-rate risk, coverage of exchange-rate risk).
Basic cash management includes the constructs for liquidity management, operational management and banking management. Advanced cash management includes those for investment management, financial management and management of financial risk coverage. The theoretical concept underlying this model is supported by the opinions of the treasury managers surveyed, who understand cash management as including not just liquidity management tasks but also others such as management of payments made and received, forecast management, banking management, investment management, financial management and financial risk management.
CONCLUSION
The results are also consistent with previous studies which evidence that treasury management in a narrow sense, or basic cash management, focused on the management of liquid assets and on the treasury income and outgoings circuits has evolved into treasury management in a broad sense or advanced cash management. To that end, treasury forecasts are drawn up, it is decided what short-term financing and investment operations to carry out and relationships with financial institutions are analysed, risks are managed and the payments and collections circuit is monitored and analysed.
