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10 crucial queries for enhancing corporate treasury’s cash concentration practices

As corporate treasurers navigate economic uncertainty and a geopolitical landscape fraught with complexities, the cornerstone of their treasury operations, cash management, reinforces itself as a pivotal anchor for stability and resilience.

One critical aspect of this management is cash concentration, which involves consolidating, transferring, or pooling of cash funds from various bank accounts of an organization into a single (master, concentration, or target) account, typically at the end of the day (and sometimes on an intra-day basis).

Nonetheless, concentrating cash from bank accounts scattered across different jurisdictions and regions can be challenging for corporate treasurers, particularly when managing business operations spanning multiple time zones amid global economic instability and geopolitical turmoil.  

To help corporate treasury evaluate their cash concentration practices and enhance the effectiveness of this practice, which can significantly impact their organization’s liquidity, financial stability, and potential to capitalise on investment opportunities, we examine 10 crucial questions that treasurers ought to contemplate to augment their cash concentration practices.

These questions cover vital areas such as designing an effective cash concentration account structure, cash positioning, technology, security measures, control mechanisms, banking relationships, and measuring the efficiency of the cash concentration structure. Let’s dive into these essential questions aimed at strengthening cash concentration practices.

As a treasury executive:

  1. Have you designed a cash concentration structure that involves collaboration between internal stakeholders (tax, accounting, and business units) and external partners (including banks, auditors, and technology providers)?

  2. Does your cash concentration structure support a high level of corporate treasury centralisation, enabling the consolidation of cash balances from all your organization’s bank accounts for deployment, loan repayment, or maximising investment potential?

  3. How well does your cash concentration account structure align with the dual purposes of mobilising funds for efficient cash management and isolating certain activity?

  4. Have you leveraged technology to enable real-time visibility, reporting, and control over cash positions enterprise-wide?

  5. Do you use the cash concentration system and purpose specific accounts as a prudent security measure to protect your corporation's data and assets?

  6. Does your cash concentration structure layer in complete and responsive account level and transactional controls to mitigate liquidity and counterparty risk, and do you periodically review these inherent controls?

  7. Are your partnering banks providing liquidity positions in all currencies relevant to your business operations, and do their liquidity management solutions seamlessly integrate with your organization’s systems?

  8. Are your banking partners innovative, and do they offer efficient cash concentration solutions such as zero balance sweeps, target balance sweeps, fixed sweeps, investment sweeps, and threshold sweeps that help optimise cash flows and lower external debt?

  9. Have you established key performance indicators (KPIs) to measure the efficiency of the cash concentration structure, including evaluating how well the consolidation of cash balances facilitates effective foreign currency risk management?

  10. Have you analysed whether the level of concentrated cash has optimised internal cash usage, leading to reduced borrowing costs or improved yields on short-term surplus cash?

Streamlined cash concentration practices are imperative for corporate treasuries seeking to optimise liquidity management and drive operational efficiency. By addressing these key queries, treasurers can confidently manage the intricacies of cash concentration, fostering resilience and adaptability in a continually evolving treasury environment.

Apart from asking the pertinent cash concentration questions, you can also find value from reviewing the leading practices for cash concentration here.

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