Best Practices in Managing Working Capital: Current Assets and Liabilities

• Chapter 1 - The Measurement of Liquidity and Its Problems
  • Learning Objectives
  • Introduction
  • Basic Working Capital Definitions and Concepts
    • Basic Terminology
  • Traditional Measures of Liquidity
  • How Firm Size Influences Liquidity
  • Working Capital Policies - Current Assets
  • Alternative Working Capital Investing Strategies
  • Alternative Working Capital Financing Policies
  • Working Capital Policies - Conservative Financing
    • "Conservative" Working Capital Policy
  • Working Capital Policies - Matched Financing
    • "Matched" Working Capital Policy
  • Working Capital Policies - Aggressive Financing
    • "Aggressive" Working Capital Policy
  • Impact of Changing Working Capital Policy
    • Effect of Changing Investment in Current Assets
    • Effect of Changing Investment in Current Liabilities
  • Causes of Unintentional Low Liquidity (When Reality Deviates from Planned Working Capital Policy)
  • Reasons for Holding Cash and Securities
  • Cash Conversion Cycle
    • Cash Conversion Cycle - Computation Formula
    • Cash Conversion Cycle - Example
    • Comparison of CCC to Traditional Ratios
    • Strategies for Managing the Cash Conversion Cycle
  • Illustrative Problem 1-1: Cash Conversion Cycle
  • Residual Income
    • Example
  • Income vs. Liquidity
    • Conservative Working Capital Policy
    • Aggressive Working Capital Policy
    • Reality Check
  • Hedging Overall Working Capital
• Chapter 2 - The Collection Process
  • Learning Objectives
  • Introduction
  • Techniques for Managing Cash
    • Synchronizing Cash Inflows and Outflows
    • Managing Float
  • Typical Transaction - Float Creation
    • Float Creation
  • Typical Transaction - Collection Float Creation
  • Check Availability
    • Match with Clearing
    • Regulation CC
    • MICR Figures
    • Transit-routing Code
  • Check Clearing Options for a Bank
  • Best Practices - Check Clearing and Availability
  • Check 21
    • Check 21 and Float
    • The Downside to Check 21
  • Speeding up Cash Collections
  • Speeding Cash Collections - Using a Lockbox
    • Transaction Times
    • Lockboxes and Check 21
  • Conducting a Lockbox Study
    • Customer Data
    • Lockbox Location
    • Potential Float Times
    • Current Processing Costs
    • Lockbox Processing Costs
    • Opportunity Cost
    • Example
  • Illustrative Problem 2-1: Costs and Benefits of Lockboxes
  • Best Practices on Lockbox Technology
  • Pre-Authorized Checks
  • Electronic Payments
    • Automated Clearing House
    • Wire Transfers
    • Reducing Collection Time Electronically
  • Best Practices - How to Buy Cash Management Services
  • Best Practices - The Flow of Cash Information
  • Effect of Cash Management on the Cash Conversion Cycle
  • Cash Concentration
  • Should You Use a Wire or DTC to Concentrate Funds?
  • Best Practices - Cash Concentration
• Chapter 3 - Receivables Management
  • Learning Objectives
  • Introduction
  • A Successful Receivable Program
  • Invoicing
    • Best Practices - Electronic Billing
  • Monitoring Receivables Balances
    • Measuring Receivables - Days Sales Outstanding
    • Aging and Balance Proportion
  • Establishing Credit Standards
  • The Five C's of Credit
    • Applying the Five C's of Credit
    • Example of an Ad Hoc Credit Scoring System
  • How to Determine Which Variables Are Important in an Ad Hoc System
    • Example - T-Test
  • Statistical Techniques - Discriminant Analysis
    • Steps
    • Discriminant Analysis - Example
  • Discriminant Analysis - Establishing the Cutoff
  • Identifying Factors to Use in an Ad Hoc or Statistical Credit Decision - Portfolio Analysis
  • Best Practices - Credit Decisions
  • Credit Terms vs. Sales
  • Best Practices - Receivable Outsourcing at Banks
  • Best Practices - Should You Outsource???
    • When Should You Outsource?
    • Who Should You Hire as Your Receivables Outsourcing Company?
  • Changing Credit and Collection Policies
    • Credit Standards
    • Credit Terms
  • Changing Credit and Collections Policies
    • Decision Model
  • Change in Net Receivables
  • Illustrative Problem 3-1: Changing Credit Terms
  • Illustrative Problem 3-2: Changing Credit Standards
    • Problem
  • Illustrative Problem 3-3: Accounts Receivable Management
  • Collection Policy
  • Collection Ideas
  • Collection Techniques - After the Sale
    • "People" Skills that May Help Collection
    • Avoid These Practices
    • Using IRS to Collect
  • Best Practices - Outsourcing Collections
  • Best Practices - More on Outsourcing Collections
  • Trade Credit Insurance
    • The Philosophy of Trade Credit Insurance
    • How Does a Policy Work?
    • Is Trade Credit Insurance for Everyone?
  • Obtaining Financing on Receivables
    • Ordinary Receivables Loan (Blanket Receivables Loan)
    • Pledging
    • Factoring
  • Securitization
  • Best Practices - Off Balance Sheet Receivables Financing
• Chapter 4 - Managing Payables and Short-Term Debt
  • Learning Objectives
  • Introduction
  • Managing a Payables System
  • Payables Decisions
    • Net 30
    • 2/10 Net 30
    • 2/10, 1/40, Net 60
    • Time Line
  • Illustrative Problem 4-1: Opportunity Cost of Funds
  • Best Practices - Re-Engineering Payables
  • Best Practices - Outsourcing Payables
  • Delaying Cash Outflows
    • Controlled Disbursement Accounts
    • Zero-balance Accounts
    • Remote Disbursement Accounts
    • Staggered Funding
    • Payable-through Draft
  • Best Practices - The Future of ZBAs
  • Best Practices - Use the ACH to Pay the Government
  • Best Practices - International ACH Transactions
  • Managing and Optimizing Short-Term Financing - An Overview
    • Financing Mix
    • Short-Term Debt
    • Unsecured Short-Term Debt
    • Advantages and Disadvantages of Short-Term Financing
  • Uses of Short-Term Debt
    • To Finance Seasonal or Temporary Capital Requirements
    • As a Permanent Part of the Capital Structure
  • Risks Inherent in Short-Term Debt
    • Debt and Liquidity Ratios Affected
    • Increased Rollover Risk
    • Increased Interest Rate Risk
    • Increased Time Commitments
  • Debt Ratios
  • Cost of Short-term Debt
  • Cost of Short-Term Debt - Continued
    • Single Payment Loans - Simple Interest
    • Single Payment Loans - Discounted Interest
    • Single Payment Loans - Fees
    • Conclusion
  • Illustrative Problem 4-2: Cost of Debt
  • Single Payment Loans - Compensating Balances
    • Example
  • Multiple Payment Loans
    • Example
  • Illustrative Problem 4-3: Yield Computations
  • Interest Rate Swaps - Managing Interest Rate Risk
    • Example
    • Interest Rates
  • The Swap
  • Combined Losses
  • The Addition of an Intermediary
    • Initial Borrowing
    • Interest Payments
    • Gains and Losses
• Chapter 5 - Investing Excess Cash
  • Learning Objectives
  • Introduction
  • Best Practices - Investment Options
  • Investing in Marketable Securities - A Basic Overview
    • Basic Characteristics
    • Types of Marketable Securities
  • Money Market Players
    • Federal Reserve
    • Dealers
    • Brokers
  • Managing a Security Portfolio - Strategies
    • Passive Strategy
    • Matching Strategy
    • Riding the Yield Curve
  • Sweep Accounts
    • Example
  • Illustrative Problem 5-1
  • Best Practices - Sweep Accounts
  • Treasury Bills
    • Example
  • Bond Equivalent Yield
    • Example
    • Purchasing T-bills
  • Commercial Paper
    • Finance Companies
  • Certificates of Deposit
  • Banker's Acceptances
  • Repurchase Agreement
  • Federal Agency Securities
    • Examples of Federal Agencies
  • Hedging Marketable Securities
  • Hedging Interest Rate Risk Uses of Financial Futures
    • Short Hedge Example
  • Profit and Loss from Transaction
    • Cash Transaction
    • Future Transaction
  • Uses of Financial Futures
    • Long Hedge Example
  • Profit and Loss from Transaction
    • Cash Transaction
    • Future Transactions
  • Illustrative Problem 5-2: Hedging
  • Tidbits on Hedging
• Chapter 6 - Inventory Management
  • Learning Objectives
  • Introduction
  • Managing and Optimizing Inventory - An Overview
    • Inventory Investment
  • Inventory Management
    • Responsibility
    • Potential Conflict
  • Inventory Costs
    • Economic Order Quantity Model
  • Cost Balancing - EOQ Models
    • EOQ Example
  • EOQ - Relaxing Assumptions
    • Assumptions
    • Non-Zero Lead Time
    • Non-Constant Demand
    • Discount Pricing - Example
  • Inventory Financing
    • Blanket Inventory Lien
    • Collateral Certificates
    • Trust Receipts
    • Warehousing
    • Marketability
  • Other Inventory Procedures
    • The ABC Inventory Method
    • Just-in-time Inventory
    • ABC - JIT
  • Best Practices - Purchasing Strategies
  • Illustrative Problem 6-1: Inventory Management
  • Hedging Inventory Transactions
  • Example
  • Forwards and Futures
    • Hedging
  • Hedging Commodity Prices - Forward Contracts
  • Forwards vs. Futures
  • Examples of Commodities Futures Traded at Various Exchanges
  • Illustrative Problem 6-2: Hedging Inventory Transactions
• Chapter 7 - Ethics Focus: Business and Industry
  • Ethics Overview
  • Recent Developments
  • Key Ethical Dilemmas
  • Addressing Ethical Dilemmas
  • Available Resources
• Chapter 8 - Latest Developments

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