Optmization of Treasury

B - THE UNNECESSARY COST OF IDLE FUNDS.
So therefore, the manager (financial manager or treasury manager) is obliged to leave too many funds without
employment as a result of the difficulties they have to control cash flows. So to assess the cost of this behavior.
1 - THE STRUCTURE OF THE COST OF MONEY.
The study of the composition of financial expenses lets us know to what extent they can be compressed.
1 - The composition of financial expenses.
Financial expenses in the short term can be broken down into two parts.
a) The first and most important, stems from the cost of the Bank loans needed to fill the shortage of cash resulting
from the lag in time between revenue and expenditure.
This part of financial costs is virtually inevitable and incompressible, at least in the short term, since the head of the
Treasury cannot influence, or received commitments and conditions of sale (loans to customers), or commitments
given and the conditions of purchases (loans granted by suppliers). He therefore suffered the decisions taken
previously by other officials, and is forced to bear them. The case is not uncommon a Treasurer where, without
immediate availability, in the need to cover an urgent regulation which would not be notified. He will have to appeal
to the more expensive solutions because the fastest.
b) The second part of the financial costs, though generally less important, is far from negligible in many companies
and comes from the mode of use of bank credit in the short term.
Unlike the previous this part of the financial costs can be, perfectly in principle at least, reduced to zero. Indeed, it
essentially stems from the quality of short-term forecasts: receipts and disbursements on the one hand, and the
effectiveness of the rules of choice of financial assistance, on the other hand.
Any credit balance can mean two things:
Either the company, at a given date has overstated its expenses or underestimated its revenues, and that,
therefore, it has mobilized through the discount more claims than it needed;
Or that the company has financed its cash requirements properly assessed by unsuitable paper: for
example she covered a need for 20 days with 30-day paper.
On the other hand, a debit balance can also mean two things:
Either that the firm, at a given date, underestimated its expenses or overestimated its revenues, and
therefore has not sufficiently expected;
Either that it has financed its cash requirements with too short paper. This is the case for example of the
company which would have filled a need for 20 days with 15 days paper: it would otherwise, I5 days later in
front of a deficit of 5 days, not 'fundable' in the best of cases, only by overdraft.
2 - Reduction of financial costs in the short term.
To reduce financial expenses need to know their origins and ensure the possibility and desirability of the action.
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