Cash Management System Saving Multinational Company Money
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Cash Management System Saving Multinational Company Money
Cash management as a practice by corporates and institutions refers to the investments in terms of transactional balances to cover scheduled outflows of funds during a budgeting period and the precautionary cash balances (Eun & Resnick, 2015). Institutions have to cover cash outflows and underestimations during allocation for transactions and invest more at a favorable rate coupled with borrowing at the lowest rates to deal with any cash shortage. The skills and systems required for effective cash management in organizations are much similar both in domestic or international operations (Eun & Resnick, 2015). Borrowing and foreign exchange are important aspects to consider for efficient cash management in institutions.
Organizations employ netting technique as a proper way of handling foreign currency transactions in the most cost-effective way. Countries have different policies and controls over netting of the multi-currency transaction, and as some allow for net payments, most only allow payment of the sales on gross basis. Countries maintain such control to ensure that there are foreign exchange transactions flows through local banks to generate income to the banks. Cash management systems save multinational companies by minimizing the expenses associated with transfer of funds that are commonly higher for transfer of foreign exchange internationally.
By reducing the number of foreign currency transactions, there is minimization of related costs, saving the company money. The intracompany float is reduced and administrative time saved using active cash systems. According to Eun and Resnick, (2015), Euronetting is one of the systems used by major companies to reconcile statements and netting of cash for their transactions and controlling participants. The system can allow settling of transactions through any currency, incorporates sets of hedging capabilities, interface with most financial and banking agencies saving companies multiple transactions, and associated costs (Eun & Resnick, 2015).