A core principle of investment policy is to focus on the credit quality of the underlying securities, not just the wrapper. U.S. Treasury bills are considered the benchmark for safety and typically represent the highest credit quality. A well-written policy often includes provisions for direct government obligations or defines acceptable securities in a way that encompasses them, even if a specific fund vehicle is unrated. The analyst’s action should align with the policy’s intent for safety and creditworthiness.

Effective cash forecasting combines both quantitative and qualitative inputs. The statistical trend provides a reliable baseline for recurring activity. A known, certain event like a major contractual payment is a definitive qualitative input that must be incorporated. The correct approach is to use the model for what it’s good at (the trend) and then manually overlay or ‘bolt on’ the specific, known anomaly to create a more accurate and complete forecast.

While fees and technology are important operational considerations, the fundamental duty in bank relationship management is mitigating counterparty risk. The financial strength and creditworthiness of the bank are paramount because they protect the company’s deposits and ensure the continuity of critical financial services. A bank failure or instability poses a severe risk to corporate liquidity. Other factors are negotiated within the context of a relationship with a financially sound institution.

The core value of a controlled disbursement service is information and precision. It allows a treasurer to know, early in the business day, the exact funding requirement for a dedicated disbursement account. This knowledge enables optimal funding decisions—transferring just the needed amount from a concentration account—thereby maximizing the use of funds elsewhere (e.g., in investments) and minimizing idle balances. It is a key tool for liquidity management.

This requires calculating the cost of foregoing the discount. The formula approximates: (Discount % / (100 – Discount %)) * (360 / (Full term – Discount term)) = (2/98) * (360/20) = 0.0204 * 18 = ~36.7%. This is the annualized cost of not taking the discount. Since the company can borrow at 7%, it is financially advantageous to borrow funds at 7% to capture a benefit of 36.7%. The rational decision is to take the discount.

Segregation of duties is a fundamental internal control. It ensures that no single individual has the ability to both create a fraudulent transaction (e.g., setting up a vendor payment to a fake account they control) and approve it for release. Dual control is related but often applies to the final release step after approval. Positive Pay is for checks. Daily reconciliation is a detective control, not a preventive one for transaction initiation.

Days Sales Outstanding (DSO) measures the average number of days it takes to collect payment from customers. An increase in DSO, with sales unchanged, means the company is taking longer to collect its receivables. This ties up cash in working capital and is a negative trend for liquidity. In contrast, an increase in DPO (paying suppliers later) preserves cash, and an increase in Inventory Turnover (selling inventory faster) frees up cash. The Current Ratio is a broader liquidity snapshot, not a direct efficiency metric of the cash conversion cycle.

Cash concentration is a fundamental liquidity management technique. Its core purposes are to: 1) Pool fragmented balances to create a larger, more usable sum of money, 2) Enhance visibility and central control over corporate liquidity, 3) Reduce idle balances in outlying accounts, and 4) Enable more effective short-term investing or debt reduction by managing a single, larger pool of funds. It is primarily an efficiency and control tool.

The backup line of credit (a liquidity facility) is a key risk mitigant in a commercial paper program. Commercial paper is a short-term, market-dependent instrument. If market conditions deteriorate or the company faces a temporary setback, it may be unable to issue new paper to repay the maturing paper (a ‘roll-over risk’). The backup line provides a guaranteed source of funds to cover that maturity, ensuring the company can always meet its obligation and avoid default.

A core principle of investment policy is to focus on the credit quality of the underlying securities, not just the wrapper. U.S. Treasury bills are considered the benchmark for safety and typically represent the highest credit quality. A well-written policy often includes provisions for direct government obligations or defines acceptable securities in a way that encompasses them, even if a specific fund vehicle is unrated. The analyst’s action should align with the policy’s intent for safety and creditworthiness.0