Manage cash: how the process runs, step by step

Cash management runs as a repeating cycle. Treasury confirms what sits in each bank account and reconciles it to the books. Receivables staff apply incoming money. The forecast gets refreshed, payments go out under dual approval, and surplus cash is invested. Accounting entries, reports and bank fee reviews close the loop.

The steps in order

1. Pull bank balances and statements. Treasury analyst. Before the business day starts, the analyst loads prior day and intraday reporting from every bank. The first check is simple: did every account report? A missing file is chased with the bank before anyone relies on the position.

1. Reconcile the cash position. Treasury analyst, with the general ledger accountant. Bank activity is compared against what the books expect. Timing items get noted. Anything unexplained goes on an open items log with an owner, because those entries tend to sit untouched until period end.

1. Apply incoming receipts. Cash applications or accounts receivable team. Checks and cash taken over the counter are deposited. Lockbox and electronic receipts are matched to invoices and customer accounts. Where a payment covers more than principal, the agreement sets the allocation order, often penalties first, then administrative charges, then interest, then the balance owed. Money that cannot be tied to an invoice goes to suspense or is classed as a miscellaneous receipt, and someone researches it. Returned checks reverse the original application, and collections is told.

1. Refresh the cash flow forecast. Treasury analyst, fed by accounts payable, payroll, tax and the business units. Actual results replace the prior estimates. Owners of unusually large deposits or disbursements must warn treasury ahead of time. That warning is the single most valuable input the forecast gets, and the one most often skipped.

1. Decide funding moves. Treasury manager. With position and forecast side by side, the manager chooses whether to sweep balances, move money between entities, draw on a credit line or repay one. Thresholds for who may approve each move belong in written policy.

1. Release electronic payments. Accounts payable prepares; a separate approver releases. Payment files go to the bank through the portal or a direct connection. Wires and urgent transfers usually sit with treasury. No single person should be able to create and release a payment. Any change to a payee's bank details is verified by calling a known contact before it takes effect.

1. Invest or redeem cash equivalents. Treasury manager, inside the investment policy. Surplus goes into approved instruments. Exceptions need sign-off from the finance chief. Trade confirmations are matched against what was ordered.

1. Post entries and publish reports. General ledger accountant posts; treasury publishes. Interest, bank charges, intercompany transfers and investment activity get recorded. A position report goes to finance leadership showing balances, forecast and any open issues.

1. Analyze and resolve bank fees. Treasury analyst. Account analysis statements are checked against agreed pricing. Overcharges are raised with the bank's relationship manager. The credit is only closed out once it appears on a later statement.

1. Oversee the banking relationships. Treasurer or treasury manager. This covers opening and closing accounts, updating authorized signers, answering know your customer requests, reviewing service quality and running bank selection when the structure no longer fits.

Where the handoffs slip

Most trouble sits between teams. Receivables may apply cash without telling treasury about a large unexpected receipt. Payables may schedule a big vendor run that never reached the forecast. Signer lists drift when people leave, and nobody notices until a bank rejects an instruction. Fee reviews quietly stop when the analyst who did them moves on.

Reconciliation is the other weak point. When open items age, people start writing them off in bulk. That hides both errors and fraud.

Questions to ask the people who run it

The documented procedure and the real one usually differ. These questions surface the gap.

• What do you do first when a bank file fails to arrive?
• Which reconciling items have been open the longest, and why are they still there?
• How do you find out about a large payment or receipt before it hits the account? Who forgets to tell you?
• When a receipt cannot be matched, where does it go, and who is responsible for clearing it?
• What happens to the customer account when a check comes back unpaid?
• Can anyone release a payment alone, even in an emergency? Has that ever happened?
• How is a change to vendor bank details confirmed in practice, not on paper?
• Which spreadsheets does the forecast depend on, and who maintains them?
• When did someone last compare fees against the agreed pricing? What came of it?
• Who keeps the authorized signer list current, and when was it last checked against staff changes?
• Which parts of this work would stop if you were away?

Listen for workarounds. A manual step that someone performs from habit, without anyone asking for it, often turns out to be the control holding the whole process together.

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.