Optimization of the company's cash flow

In addition, the monetary risk is always present: If inflation has no longer in recent years in our industrial
economies a devastating effect, the exchange rate risk due to the floating of currencies remains a factor of
insecurity.
Finally, the money market risks, including the risk of rate have led to the development of protection
techniques, real 'financial engineering' in the service of the cash management.
In the light of these facts it is necessary to redefine the data and objectives of an optimal management of the
Treasury. The need of this reflection is twofold:
From a practical point of view we will analyze the causes of the difficulties of cash when the company is profitable
and growing. We will not discuss the financial consequences of a reduction of the level of activity whose cause is
either a general economic crisis, or a weakening of demand for the product. In the first case, it’s a situation largely
exceeding cash-flow problems. In the second case, it is to find another market or to disappear. Genuinely, companies
that are "sick of their own cash" are generally expanding and with an important short term debt. Even when the
economic situation is positive, such companies have deadline problems that can become very serious.
A cash crisis revealed weaknesses in the management of the firm, because any act of management translates to
inputs and outputs of liquidity. We show that any cash crisis relates to one of the following two cases:
Short-term cash crises, on one hand, caused by the lack of synchronization between the inflow and outflow
of funds flows;
The structural crises of cash, on the other hand, resulting from the absence of concordance between the
overall stability of the funding and the overall period of recovery of the use of the funds.
Cash management is therefore widely beyond the short-term. It is an economic study of the financing needs of the
company and is located in the hinge of the financial problems and operating problems. Cash Treasury is not the
balance of cash flow, but the synthesis of all company policies. The cash management plays an essential role in the
life of companies.
From a theoretical point of view, then, we will highlight that optimal cash management through a systemic approach
of financial management. Cash policy is conditioned by the basic financial choices:
Choice of the structure of liabilities, or funding policy,
Choice of the structure of assets, or investment policy.
The optimum of management is defined by the close compatibility between liquidity and profitability. The short term
solvency should not depend on the detention of cash but on serious forecasts, on one hand, the behavior of the cash
flow in the short term and even in the very short term, and, secondly, the evolution of the turnover’s structure which
affects the formation of these flows. On the long term only high profitability ensures the company a volume of selffinancing
compatible with a debt policy that provides the firm with new resources. Any investment causes the
immobilization of funds but its profitability should allow for restoration of the liquidity of the firm
We will show that investment policy that generates the best overall liquidity of the company is the optimal and most
cost-effective choice. Optimal cash management is a management that maximizes both liquidity and profitability.
The management of the Treasury, i.e. the liquidity of the firm, revolves therefore around three actions:
An economic action, whose purpose is to maintain the closest bank balance of zero by control of entry and
cash flow;
A structural action, whose purpose is to control the potential for the recovery of liquidity of the assets of the
company by the mastery of allocation of the cash flows, by a fair assessment of the needs for working capital
and their adequate funding.
A monetary action, by setting up a protection against the variation in the purchasing power of the currency
and money markets risk.
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