Centralised and decentralised cash management

Centralised and decentralised cash management are two approaches to managing a company's
cash and liquidity. Here's an overview of each approach:

Centralised Cash Management:

In centralised cash management, a company consolidates its cash and liquidity management
functions at a central level, typically at the corporate or headquarters level.

Here are some key characteristics of centralised cash management:

1. Cash Concentration: Cash from various subsidiaries or business units is pooled together into a
central account. This pooling enables better visibility and control over the company's overall cash
position.

2. Decision-making: Centralised cash management allows for more coordinated decision-making

regarding cash deployment, investment strategies, and funding requirements. It enables the
central treasury or nance department to allocate cash e ciently and optimise the use of funds.

3. E ciency and Cost Savings: Centralisation can lead to economies of scale and cost savings by
streamlining cash management processes, reducing redundant activities, and negotiating better
terms with nancial institutions.

4. Cash Forecasting and Planning: Centralised cash management facilitates the development of
comprehensive cash forecasting and planning systems. It enables the central treasury to monitor
cash ows, predict funding needs, and allocate resources e ectively.

5. Risk Management: Centralisation provides better oversight and control over cash-related risks,
such as liquidity risk, counterparty risk, and foreign exchange risk. Centralised cash management
allows for the implementation of risk management strategies and hedging activities at a
consolidated level.

Advantages:

1.Improved Cash Visibility: Centralising cash management allows for better visibility and control
over the company's overall cash position, enabling more e ective forecasting and planning.

2.Enhanced E ciency: With a single team managing cash across the entire organisation,
redundant processes and overheads can be minimised, leading to cost savings and increased
e ciency.

3.Better Risk Management: Centralisation helps identify and manage liquidity and nancial risks
more e ectively, ensuring the company's nancial stability.

4.Economies of Scale: Centralised cash management may lead to better negotiating power with
nancial institutions and improved terms on banking services.

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Decentralised Cash Management:
In decentralised cash management, cash management responsibilities are delegated to individual
business units or subsidiaries within the organisation. Here are some key characteristics of
decentralised cash management:

1. Autonomy: Under decentralised cash management, each business unit or subsidiary maintains
control over its cash ows and manages its own liquidity needs independently. This autonomy
allows for more localised decision-making and exibility.

2. Responsiveness: Decentralised cash management can be more responsive to the speci c

needs and circumstances of each business unit. It allows for tailored cash management strategies
based on factors such as local market conditions, currency requirements, and business unit
objectives.

3. Local Relationships: Decentralisation enables business units to establish and maintain

relationships with local banks and nancial institutions, leveraging their expertise and knowledge
of local markets. This can be bene cial for accessing local funding sources and navigating
regulatory requirements.

4. Proximity to Operations: Decentralised cash management brings cash management functions

closer to the operational activities of each business unit. This proximity can lead to better
understanding and management of local cash ows, payment cycles, and working capital
requirements.

5. Business Unit Accountability: With decentralised cash management, individual business units
bear the responsibility for their cash management outcomes. This accountability can promote a
sense of ownership and encourage more e cient use of resources.

Advantages:

1.Local Expertise: Decentralisation allows business units to respond quickly to local market
conditions and speci c cash management needs, leveraging their local expertise.

2.Faster Decision-Making: Business units can make cash management decisions without the
need for approval from a central team, leading to faster responses to market dynamics.

3.Flexibility: Each unit can tailor its cash management strategy to its speci c requirements and
risk appetite.

Choosing the Appropriate Approach:

The choice between centralised and decentralised cash management depends on various factors,
including the company's size, geographic dispersion, industry, regulatory environment, and overall
corporate strategy. Some companies may adopt a hybrid approach, combining elements of both
centralisation and decentralisation to strike a balance between control and autonomy.

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