Importance of the Policy
A formal policy defines a company's objectives for the cash collection and concentration system. It helps to communicate those objectives throughout the company and provides guidelines to ensure that the practices employed by the company support those objectives. A formal policy also establishes linkages between cash collection and concentration practices and the company's overall business management objectives. The creation of a formal policy helps to define the roles, responsibilities and cross-functional relationships of various departments involved in cash collection and concentration activities. Furthermore, a well-documented policy promotes consistent, uniform practices throughout the corporation.
Policy Relationship With Other Functional Areas
The cash collection and concentration process is influenced by factors outside the traditional treasury function. These factors include billing, accounts receivable and point-of-sale practices, as well as customer buying behavior and customer service. Input from sales and marketing, billing, accounts receivable and credit is important to the policy development process. For example, the cash collection cycle is strongly tied to the frequency of invoicing. In a retail environment, concentration practices are linked to collection at the point of sale and store managers may play an important role in the timely reporting of local deposit information. Also important is treasury's input into the practices and policies that "touch" the cash collection and concentration process but are not in treasury's direct control. Accounts receivable must work with treasury to ensure payments are applied to internal systems in a timely and accurate manner. These practices and their related policies should be considered in the development of the cash collection and concentration policy. The policy should address the interrelationships of various departments and consider their critical roles in ensuring an efficient cash collection and concentration process.
The Policy Development Process
A vital step in developing a cash collection and concentration policy is to appoint a champion to lead the effort. The champion is an individual or group of individuals to whom primary responsibility for the development process can be assigned. This is typically the treasurer, the assistant treasurer, cash manager or an appointed committee. Although often overlooked, the active involvement and support of senior management will contribute greatly to the success of the development process and to producing a policy acceptable to all areas involved. Parent companies of decentralized, multinational and global organizations should establish their role and level of involvement in the policy development process, as well as the role of the subsidiaries. If a company has decentralized treasury operations, policies can be developed centrally and enforced locally. Furthermore, centralized decision-making will typically reduce overall costs, maximize returns and create economies of scale.