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Most chief financial officers are prioritising cash management solutions to earn meaningful returns and optimise cash. In fact, new research shows they now rank “cash management and liquidity” as their second-biggest priority, just after funding.
The latest Global Treasury survey report by PricewaterhouseCoopers further reveals that CFOs are seizing strategic opportunities amid trying times which forces businesses to make their cash work harder for them.
Citadel Global director Bianca Botes believes businesses should be leveraging cash management strategies to their benefit, particularly during times of volatility and rising interest rates. Too many businesses have their cash reserves deposited in non-interest earning current accounts, she warns.
“While these allow easy access to cash, they do not maximise returns like a more strategic cash exposure can. An intentional cash management approach maximises the returns on cash while still considering and, more importantly, minimalising the tax consequences of sound cash solutions.”
According to Botes, there are a number of factors businesses should consider when seeking a cash management offering.
“When seeking a cash management partner, research which companies can offer your business the best cash portfolio and always read the fine print. You ideally wish to find one that considers many key aspects that will make a tangible difference to your returns, such as the rate at which interest will be taxed, etc.,” she says.
Cash management is not dependant on the size of your business, but rather your cash on hand, and your cashflow cycles. This is why it should be a strategic priority even for small businesses, adds Botes.
As an example, she notes that the Citadel Global Cash Management solution is specifically designed for medium to large-sized businesses. “Although we do not stipulate the size of business that can transact using this service, to maximise its value from an earnings point of view, a business must have at least R500 000 in available cash.”
Understanding cashflow cycles
An essential part of getting started is meeting with your prospective cash management partner so that they can gain an understanding of your business’ short-, medium-, and long-term cashflow needs, adds Botes. “Ultimately, we are looking to understand your cashflow cycles to determine the best possible strategy that aligns with your cash holdings.”
Botes’ comments come in the wake of increasing volatility of the Rand. With the Rand being a commodity-driven currency, the best protection against currency volatility is to store your money in a more stable international currency, she believes.
“Yet, South African legislation does not allow corporate cash to be passively invested offshore. However, for a longer-term cash investment, your specialist should consider an asset swap solution to ensure your cash is protected in volatile economic times.”
It is therefore important to work with an expert and not to follow a do-it-yourself approach.
“Of course, a business can manage its own cash. However, cash management is a time-consuming activity, and to get the best returns, it requires a sound understanding of financial markets. With the help and guidance from specialists, you can focus on the daily running of your business knowing that you are likely getting the best returns.
“Managing increasingly complex foreign exchange transactions and exposures requires both a keen understanding of currency risk and a sound and effective cash flow and corporate cash management approach, which expands as your needs change.”