Cash Flow Management Flashcards

What is the primary purpose of a 13-week cash flow forecast?

Answer: To provide short-term liquidity visibility for near-term cash management decisions

The 13-week cash flow forecast is a rolling short-term tool used to monitor and manage near-term liquidity, especially important during financial stress.

Which technique involves pooling cash balances from multiple bank accounts into a single master account?

Answer: Cash pooling (notional or physical)

Cash pooling concentrates balances from subsidiary accounts into a master account to maximize interest earnings and minimize borrowing costs.

What is the difference between a physical cash pool and a notional cash pool?

Answer: Physical pools involve actual fund transfers; notional pools offset balances mathematically without moving funds

In a physical pool, funds are swept into a master account; in a notional pool, balances are offset on paper without actual transfers, reducing bank fees.

Accounts receivable factoring involves:

Answer: Selling receivables to a third party at a discount for immediate cash

Factoring allows a company to sell its receivables to a factor (third party) at a discount, receiving immediate cash rather than waiting for customer payments.

What is a lockbox system used for in cash management?

Answer: Accelerating the collection of customer payments by directing remittances to a bank-operated PO box

A lockbox system routes customer payments directly to a bank-operated collection center, accelerating deposit and reducing float on incoming receipts.

Which metric measures a company's ability to cover short-term obligations using its most liquid assets?

Answer: Quick ratio (acid-test ratio)

The quick ratio (cash + marketable securities + receivables ÷ current liabilities) measures liquidity using only the most liquid assets, excluding inventory.