International Working Capital Management

Working Capital Management

Managing the Operating Cycle and the amount of Capital locked up in various stages of the operating cycle. Working Capital Management involves
Arriving at optimal levels of Current Assets Monitoring and Controlling Current Assets Financing the Current Assets at the lowest cost

Components of Working Capital

Inventory the stock of Raw Materials, Work-in-Progress, Finished Goods maintained to delink the smoothen procurement, production and sales Receivables Sales offered on credit terms to compete and increase sales Cash Maintaining Optimal balances of cash, speeding up collections, monitoring disbursements.

Issues on Receivables Management

Credit Period Currency of Invoicing Credit to High Inflation countries Incentive mechanism to the Sales managers Use of Cross Border Factoring & Forfaiting Bill Discounting

Issues on Inventory Management

Production Location Speculative piling of stocks Use of free trade zones and free industrial zones for stocking goods for sale in future Dispatching completely knocked down kits to be assembled and sold Use the free industrial zones for manufacturing and re-exporting

International Cash Management

Activities involved in
Managing optimal balances either at a decentralised or centralised level Facilitation of cross-border movements of cash by effectively managing the FLOAT Reducing the exchange rate risk involved in handling multiple currencies Identifying investment avenues for short-term surpluses Reducing transactions and transaction costs Budgeting for individual division, currency, and enterprise wide Managing Blocked Funds

CENTRALISATION
Advantages
Information on the enterprise wide cashflows Reduction of precautionary balances Reduction of borrowing and interest costs Encashing on better investment avenues

Disadvantages

Loss of autonomy to the divisional managers May not appreciate the unique local issues of the divisions High initial investments for a central pool, with expenditure on treasury, risk management, experts.

NETTING
Bilateral When the netting of cash flows is achieved on a one-to-one basis, among the divisions, considering a pair of divisions at a time Multilateral When the netting of cashflows is achieved considering the entire enterprise as a whole, with a central cash pool.

The Central Cash Pool

It serves the purpose of a central depository of cash in the case of a multinational corporation, where it is generally located at an important money market nerve centre. All the cash flows of the subsidiaries are routed through it and it maintains the books for the inter subsidiary cash flows.