Filled Liquid

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Filled Liquid

LIQUIDITY MANAGEMENY SYSTEM

-Introduction

The first thing in the management of liquidity is the management of the cash in hand. This is cash that is usually kept at home for emergencies. This is useful in case of immediate hospitalization in hospital where you have the money to pay for the time of admission.

Even if the amount in cash held in the hand may vary depending on the number of family members and the estimated need. However, a minimum of Rs 25000-30000 is crucial because it is the condition in most situations. This provides a security feature for the individual. It 'very important that this amount is kept away from daily expenses, and if used, replenished quickly.

That What is liquidity?

We often hear the word of liquidity used in combination with cash management. Liquidity is a firm's ability to pay its short-term debt obligations. In other words, if the company has adequate liquidity, it can pay its current liabilities such as accounts payable. Usually, the accounts payable are debts we owe to our suppliers.

There are methods we can use to measure its liquidity. Value financial analysis will help us determine how liquid or as a company will be successful in meeting its short-term debt securities. The current report will help us to determine the ratio of current assets to current liabilities. Current assets include cash, receivables, inventory, line and, occasionally, other items such as marketable securities. We need more current assets current liabilities on our balance sheet at all times.

The quick ratio allow the determination, if we are able to pay the debt in the short term obligations or liabilities, without having to sell any inventory. It 'important for a company to be able to do this, because if we sell must sell stock to pay the bills, which means that we must find a buyer for the inventory. Finding a buyer is not always easy or possible.

There are several other measures of liquidity that you want to use to determine our cash position.

When your business is just the start, in essence, we have implemented a volume control, which is an example of cash. As long as there is money in account, our business is solvent. As businesses become increasingly complex, we will have to adopt financial accounting. However, we must maintain a focus on liquidity and cash management, even if our record net income through the financial accounts.

Importance of liquidity management --

Regardless of the type of society, effective liquidity management is a core responsibility of its treasury group. Inside of a financial institution of the treasury, is crucial. Core revenue generating functions of the banks' capital markets, loans, payments, etc. "will depend sufficient levels of liquidity to operate. Moreover, as the financial world has become increasingly global, were of a bank to have sufficient liquidity to fund CLS a sensitive time for payment or to finance lending activities (eg Northern Rock), the ripple effects would be felt throughout the world and the reputation of the institutions would seriously, if not irreparably damaged. With these critical responsibilities, the ability of a financial institution treasury group to minimize the balances and identify all cash flow is essential to its success.

Beyond the relationship between liquidity and revenue generating functions of a financial institution are the costs resulting from inefficient management of it. Manual processes require personnel in excess, tend to limit the mistakes and treasury capacity to focus on optimizing liquidity and other personnel. Furthermore, most of the information needed for the process of managing liquidity in longer exists, disparate systems, in the lot, are not generally available in real time. This involves the inability to quickly identify the lowest cost of funds, resulting in increased of interest charges. Moreover, these results, the need for cash to maintain a liquidity "cushion" to ensure the levels of liquidity does not fall too low.

The process of liquidity management --

Effective liquidity management requires three passages in which Treasury identifies, manages and improves liquidity. These steps are interdependent, each requiring the successful implementation of the other two for the management optimal liquidity.

Identifying liquidity as the basis from which the whole process of liquidity management depends. The question is the balance and the positions of the institutions on an enterprise level. This requires the ability to access and collect information through the establishment of many lines of business, currencies, accounts and, often, multiple systems. Identifying liquidity is primarily a function of data collection, and does not include the movement or actual use of funds.

Liquidity management in a bank treasury identified involves using the bank's liquidity support income generating activities. This may include consolidation of funds, the issue of fund management in order to maximize their use, and tasks that "free" funds at low cost for the loan or investment to maximize their value for the institution.

Optimizing liquidity is an ongoing process with a focus on maximizing the value of 'institute funds. As the strategic aspect of liquidity management, optimization of cash balances requires a strong and thorough understanding of Financial Institutions liquidity positions in all currencies, accounts, lines of business with their counterparts. With this information, the treasury of the bank is able to map the strategic aspects of institutions in the process of liquidity management.

The biggest challenge in the process of liquidity management is the limited time and resources available treasury. Even if the groups are Treasury staff with very capable staff, a large amount of their time is spent on the task-based feature identification liquidity at the strategic elements required to optimize sales. This is reflected throughout the process of liquidity management to be less effective and the establishment of bottom line.

The basic steps necessary for the management of liquidity --

How companies are implementing measures to improve their liquidity management by using these three steps:

1. Improving the visibility of the workflow with centralized payment and approval

2nd Reducing the costs of implementation of electronic payments

3rd Reduce fraud and erroneous payments

The economic downturn is affecting the way to the institutions financial liquidity in a number of ways. It has particularly affected the liquidity of the portfolios of financial instrument, which now must be carefully reappraised.

If this is our situation as regards the management of liquidity --

Management procedures are inadequate liquidity, and restrictions are obsolete and prevent companies from going ahead
The existing level of control liquidity and cash flows is no longer sufficient
Additional volume of liquid reserves should be attracted to close the gap in liquidity
Liquidity contingency plans are not realistic in the current market conditions
The fair value of assets and the maturity and conditional liabilities that may materialize the current environment must be rapidly identified making, often unable to follow even the fastest economic
The end-of-the-day report, loaded into the system, is always late
ALM and risk management teams are unable to work

How to maximize cash flow --

Our goal, as the owner and manager of a company, is to squeeze all the money in the budget that you can. Not only have we wanted to get more money out of our society, as we can, to keep it in the event of a potential or actual crisis.

Two of the bank assets are typically large drains on cash. This is inventory and accounts assets. Inventory is the sale of products and claims are our accounts or credit accounts that are extending credit to customers. The balances in both accounts must be converted to cash as soon as possible.

We can use financial ratio analysis to verify our position on inventory and receivables. Inventory turnover ratios can tell us if our inventory is obsolete or if we are selling so fast our stocks. Accounts receivable reports, as the day's sales outstanding, may tell us how fast our credit customers are cleaning their accounts among other things. After determining the location of our inventory and receivables, we can take the appropriate actions to adjust the situation and have more money coming to the enterprise.

Conclusion --

The bottom line to good cash management is that in case of crisis, the typical financial become irrelevant and all that is important is to survive in cash from one point of view. In a cash crisis as a recession, a holder of focus becomes, by necessity, very short term. Often, a good infuse cash crisis management practices of the cash manager in business that carry over from that day forward.

References --