Optimization of the company's cash flow

The treasury of a company can be analyzed as the global materials and resources that the company has in front of all
kind of contracted engagements. The main situation of the company’s often related to the conditions of liquidity that
the company acquires by the time, and that’s what expresses the term of “The Solvency” defined as the ability of an
economic agent to confront his debts and loans with the exact payment conditions at the due date. The optimal
management of the treasury is based on forecasting, controlling, and handling correctly the dimensions and dates of
liabilities and those of spontaneous availabilities as a result of the company’s functioning system and to procure at
the same time the optimal duration of costs and complementary availabilities that are needed. In other meaning, the
mean objective of the treasury if to make available the liquidity that the company needs at the exact time with the
minimum of costs.
The control of the turnover’s liquidity is the main objective of the “Treasury’s Policy” or “Policy of Cash”, which makes
the goal of this research that I’ve worked on inside the IWACO’s company; to define the content of such a policy and
how it works. For that, it’s required that we determine the methodological approach of the problem before
describing the means and tools of actions and the conditions of implementation to achieve optimum management.
In the finance traditions, managing the cash of a firm boils down to the two following activities:
Check the level of the Cash
Maintain the creditworthiness (Solvency)
The cash level is monitored from the study of the accounting Balance. “The Receipts” and “Treasury” refer to the
same reality. Cash is analyzed as a result of the activity. In other words, the cash flows of a business at a given time
is the difference, at this date, between:
Its working capital which is the part of the permanent capitals not absorbed by the financing of securities
and real estates and therefore available to finance the requirements related to the operating cycle.
And its needs in working capital (FDR) which is linked to the operating cycle.
On a specified date, when the working capital (FDR) is greater than the working capital needs; the cash flow or the
Cash Treasury is positive. On the contrary, if the Working Capital Fund (WCP or FDR) is insufficient cash, the Treasury
cash becomes negative. Maintaining solvency that assures the settlement of receivables results, meanwhile, from
the financial decisions taken in the short term. This action Is divided into two components:
First; the determination of a certain level of cash to jeep for reasons of transaction or suppliers’ payments,
finance and speculation.
Second; the choice of the best method of financing cash deficits that may appear.
The objective of solvency would be easily reached if the company could have a large cash liquidity position providing
a wide margin of safety and a 0.05% gain from the suppliers. Yet, any detention of currency entails costs: profitability
and solvency appear as two antagonistic terms.
Every year, thousands of companies are facing cash difficulties. The phenomenon can affect not only small and
medium-sized or even unprofitable companies. Liquidities
Each year thousands of companies are facing cash difficulties. The phenomenon can affect not only small and
medium-sized or even unprofitable companies. Liquidity difficulties grows with the evolution of modern economies.
But we can also assume that the cash management requires greater rigor on the practical level and a new approach
at the theoretical level. For a long time, in fact, the economic situation had made easier the payment of debts and
repayment of loans by companies that had got into debt. However, since 20 years cash flow problems are one of the
bottlenecks of business activity. The number of those facing "wall of money" continues to increase. Four phenomena
are in this respect to take into account.
Firstly, even if currently the cost of money is experiencing a net relaxation, gave first-order importance to
the follow-up of two accounts “receivable and suppliers” it means inter-firm trade credit.
Then, economic conditions, in particular consumption, following the oil shocks, unemployment,
technological innovations and relocations, makes the requirements of turnover’s liquidity harder to master.
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