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Analysis on Demands of Cash Management
● The client needs to centralize the authority of the headquarters and its subordinate units in external income and expense of funds in the headquarters and the subordinate units are forbidden to keep any fund.
● The client needs to manage its holding subsidiaries in the form of "Zero Balance Accounts" and the funds of these accounts will be liquidated with the account of the headquarters every day.
● The group adopt the management of "Zero Balance Accounts" on its subordinate units and holding subsidiaries and the management shall not have impact on necessary daily payment.
● The client requires the bank to speed up the reflow of the accounts receivable and lower the risk of the accounts receivable.
Cash Management Solution
In the way of account establishment, the group can adopt commission loan fund pool collection mode for his holding subsidiaries and adopt "separation of expense from income" or group account collection mode for its headquarters and subordinate units.
1. Group Cash Management Solution
As to headquarters and its subordinate units, the first mode is "separation of expense from income", means every company establishes its own income and expenditure accounts. The income account is mainly used in reflow of payments for goods and can't be used in handling payment to the third parity except collecting funds for the headquarters of the company; the expenditure account is mainly used in daily operation expenses and can't absorb any fund from the third party except the appropriation from the headquarters of the company. The second mode is group account mode to manage and control the funds of the headquarters of the company and its subordinate units. The headquarter of the company establishes a group general ledger account, the branches establish secondary accounts and the funds of the secondary accounts will be transferred to the level-1 account in real time.
After establishment of account management framework of whole group, ICBC can offer collection and payment service through rich product portfolio and diversified channels. Within the collection service, beside traditional methods like instrument or exchange, ICBC also offers other various services such as internet banking toll station, fixed debit, comprehensive collection and prompt line.
2. Accounts Receivable Solution
In order to resolve the problem of reflow of account receivables, ICBC can offer two solutions: domestic Letter of Credit and accounts receivable factoring. Domestic Letter of Credit is a settlement instrument in order to help two parties of the domestic transaction prevent transaction risk by the intervention of bank credit. Agents can apply for issue domestic Letter of Credit from ICBC, and enterprises can deliver the goods in consideration of the Letter of Credit and submit the notes, or apply for negotiation credit from the bank. After received notes, issuing bank will pay corresponding funds; after payment, agents can get corresponding notes and go through the procedure of taking the delivery of the goods.
Besides domestic Letter of Credit, ICBC also offers domestic accounts receivable factoring business to the company. The bank assists the company to recover the funds by purchasing accounts receivable.
Plan Implementation Effects
Analysis on the plan effects-qualitative contrast
| Item |
Before application of cash management |
After application of cash management |
| Account system |
Decentralized |
Centralized |
| Information exchange |
Slow |
Timely |
| Risk control |
Weak |
Strong |
| Liquidity management |
Weak |
Strong |
| Credit support |
Weak |
Strong |
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