Money and Marketable Securities Management

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. Money and Marketable Securities Management. Thought processes in Holding CashSpeeding Up Cash ReceiptsS-l-o-w-i-n-g D-o-w-n Cash PayoutsElectronic Commerce. . . Money and Marketable Securities Management. OutsourcingCash Balances to MaintainInvestment in Marketable Securities. . . Intentions in Holding Cash.

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´╗┐Section 9 Cash and Marketable Securities Management ┬ę 2001 Prentice-Hall, Inc. Basics of Financial Management, 11/e Created by: Gregory A. Kuhlemeyer, Ph.D. Carroll College, Waukesha, WI

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Cash and Marketable Securities Management Motives for Holding Cash Speeding Up Cash Receipts S-l-o-w-i-n-g D-o-w-n Cash Payouts Electronic Commerce

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Cash and Marketable Securities Management Outsourcing Cash Balances to Maintain Investment in Marketable Securities

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Motives for Holding Cash Transactions Motive - to meet installments emerging in the standard course of business Speculative Motive - to exploit transitory open doors Precautionary Motive - to keep up a pad or support to meet surprising money needs

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Cash Management System Disbursements Collections Marketable securities venture Control through data detailing = Funds Flow = Information Flow

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Speeding Up Cash Receipts Collections Expedite get ready and mailing the receipt Accelerate the mailing of installments from clients Reduce the time amid which installments got by the firm stay uncollected

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Collection Float Mail Float Processing Float Availability Float Deposit Float Collection Float : add up to time between the mailing of the check by the client and the accessibility of money to the getting firm.

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Mail Float Customer sends check Firm gets check Mail Float : time the check is on the way.

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Processing Float Firm gets check Firm stores check Processing Float : time it takes an organization to handle the check inside.

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Availability Float Firm stores check Firm's financial balance credited Availability Float : time devoured in clearing the check through the saving money framework.

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Deposit Float Processing Float Availability Float Deposit Float : time amid which the check got by the firm stays uncollected assets.

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Earlier Billing Accelerate planning and mailing of solicitations electronic charging solicitations included with shipment solicitations are faxed propel installment demands preauthorized charges

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Preauthorized Payments Preauthorized charge The exchange of assets from a payor's ledger on a predefined date to the payee's financial balance; the exchange is started by the payee with the payor's propel approval.

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Lockbox System Lockbox A mail station box kept up by a company's bank that is utilized as an accepting point for client settlements.

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Lockbox Process Customers are told to mail their settlements to the lockbox area. Bank gets settlements a few circumstances every day from the lockbox. Bank stores settlements in the clients account and gives a store slip a rundown of installments. Organization gets the rundown and any extra sent things.

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Lockbox System Advantage Receive settlements sooner which diminishes preparing glide. Drawback Cost of making and keeping up a lockbox framework. By and large, not invaluable for little settlements.

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Concentration Banking Cash Concentration The development of money from lockbox or field banks into the association's focal trade pool dwelling out a focus bank. Repaying Balance Non-enthusiasm bearing interest stores kept up by a firm to remunerate a bank for administrations gave, credit lines, or advances.

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Concentration Banking Moving money equalizations to a focal area: Improves control over inflows and outpourings of corporate money. Diminishes sit without moving money parities to a base. Takes into consideration more viable speculations by pooling abundance money parities.

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Concentration Services for Transferring Funds (1) Depository Transfer Check (DTC) Definition : A non-debatable check payable to a solitary organization account at a fixation bank. Assets are not promptly endless supply of the DTC.

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Concentration Services for Transferring Funds (2) Automated Clearinghouse (ACH) Electronic Transfer Definition : An electronic variant of the vault exchange check (DTC). (1) Electronic check picture adaptation of the DTC. (2) Cost is not noteworthy and is replacing DTC.

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Concentration Services for Transferring Funds Definition : A non specific term for electronic assets exchange utilizing a two-way interchanges framework, as Fedwire . Assets are endless supply of the wire exchange. A great deal more costly. (3) Wire Transfer

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S-l-o-w-i-n-g D-o-w-n Cash Payouts "Playing the Float" Control of Disbursements Payable through Draft (PTD) Payroll and Dividend Disbursements Zero Balance Account (ZBA) Remote and Controlled Disbursing

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"Playing the Float" Net Float - The dollar distinction between the adjust appeared in an association's (or individual's) checkbook adjust and the adjust on the bank's books. You compose a check today, which is subtracted from your count of the record adjust. The check has not cleared, which makes skim. You can conceivably acquire enthusiasm on cash that you have "spent."

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Control of Disbursements Firms ought to have the capacity to: 1. move supports rapidly to banks from which distributions are made. 2. create every day nitty gritty data on parities, receipts, and distributions. Arrangement: Centralize payables into a solitary (more modest number of) account(s). This gives better control of the payment procedure.

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Methods of Managing Disbursements Payable Through Draft (PTD): A registration instrument that is drawn against the payor and not against a bank similar to a check. After a PTD is introduced to a bank, the payor gets the chance to choose whether to respect or decline installment. Defers an opportunity to have supports on store to cover the draft. A few providers lean toward checks. Banks will force a higher administration charge because of the extra dealing with included.

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Methods of Managing Disbursements Payroll and Dividend Disbursements The firm endeavors to decide when finance and profit checks will be introduced for gathering. Commonly a different record is set up to deal with each of these sorts of payment. A dispersion planned is anticipated in view of past encounters. [See slide 9-27] Funds are kept in view of expected needs. Limits exorbitant money equalizations.

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Percentage of Payroll Checks Collected 100% The firm may anticipate finance checks being exhibited in a comparative example each payroll interval. 75% Percent of Payroll Collected half 25% 0% F M T W H F M and after (Payday)

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Methods of Managing Disbursements Zero Balance Account (ZBA): A corporate financial records in which a zero adjust is kept up. The record requires an ace (parent) account from which assets are attracted to cover negative adjusts or to which overabundance parities are sent. Dispenses with the need to precisely estimate every payment account. Just need to gauge general money needs.

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Remote and Controlled Disbursing Remote Disbursement - A framework in which the firm guides checks to be drawn on a bank that is topographically remote from its client to expand registration time. This boosts dispensing skim. Illustration: A Vermont business pays a Maine provider with a check drawn on a bank in Montana. This may stretch provider relations, and raises moral issues.

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Remote and Controlled Disbursing Controlled Disbursement - A framework in which the firm guides checks to be drawn on a bank (or branch bank) that can give early or mid-morning notice of the aggregate dollar measure of watches that will be exhibited against its record that day. Late check presentments are insignificant, which permits more precise anticipating of payment on an everyday premise.

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Electronic Commerce Electronic Commerce - The trading of business data in an electronic (non-paper) organize, including over the Internet. Informing frameworks can be : 1. Unstructured - use advances, for example, faxes and messages 2. Organized - use innovations, for example, electronic information trade (EDI) .

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Electronic Data Interchange (EDI) Electronic Data Interchange - The development of business information electronically in an organized, PC lucid configuration. Electronic Funds Transfer (EFT) EDI Financial EDI (FEDI)

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Electronic Funds Transfer (EFT) Electronic Funds Transfer (EFT) - the electronic developments of data between two storehouse establishments bringing about an esteem (cash) exchange. Electronic Funds Transfer (EFT) EDI Subset Society of Worldwide Interbank Financial Telecommunications (SWIFT) Clearinghouse Interbank Payments System (CHIPS)

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Electronic Funds Transfer (EFT) New Regulation In January 1999, another control requires ALL government installments be made electronically.* This will: give more security than paper checks and be less expensive to prepare for the administration. * Except assessment discounts and uncommon waiver circumstances

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Financial EDI (FEDI) Financial EDI - The development of monetarily related electronic data between an organization and its bank or between banks. Money related EDI (FEDI) EDI Subset Examples incorporate : Lockbox settlement data Bank adjust data

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Costs Computer equipment and programming consumptions Increased preparing expenses to actualize and use an EDI framework Additional costs to persuade providers and clients to utilize the electronic framework Loss of buoy Benefits Information and installments move speedier and with more prominent unwavering quality Improved money estimating and money administration Customers get quicker and more dependable administration Reduction in mail, paper, and record stockpiling Costs and Benefits of EDI

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Outsourcing - Subcontracting a specific business operation to an

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