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How can you identify and prioritize cash management risks?

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Cash management is the process of collecting, managing, and investing cash flows for a business. It is essential for maintaining liquidity, profitability, and solvency. However, cash management also involves various risks, such as currency fluctuations, fraud, operational errors, and regulatory compliance. How can you identify and prioritize these risks and implement effective controls to mitigate them? Here are some steps you can follow.

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Dominik Ostermeier

Treasury & Payment Manager @ FC Bayern München
Sk. Tarekul Islam

BBA,MBA(DU)? CA-Partly Qualified?Assistant Chief Accountant-Radisson Blu Dhaka Water Garden
Folashade Eyinola (Odusanya)

JMSB GDBA graduate, PSM,SAP (SCM), Prince2,CertDA, FCCA

1 Assess your cash flow sources and needs

The first step is to understand where your cash comes from and where it goes. You can use a cash flow statement to track your cash inflows and outflows from operating, investing, and financing activities. This will help you identify your cash cycle, cash conversion cycle, and working capital requirements. You can also use cash flow forecasting to project your future cash flows based on your sales, expenses, and capital expenditures. This will help you plan your cash needs and avoid cash shortages or surpluses.

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Dominik Ostermeier

Treasury & Payment Manager @ FC Bayern München
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Als gro?er Club ohne Schulden hat der FCB das Glück auf einem soliden Fundament zu stehen. Das stabile aufbauende Konstrukt besteht aus einem mittlerweile gut diversifizierten Portfolio an unterschiedlichen Einkommensstr?men. Auch wenn die Arena jedes Spiel ausverkauft ist, gelang es in den letzten Jahrzehnten immer unabh?ngiger von den Ticketeinnahmen zu werden. So sind Ertr?ge aus oftmals langfristig geschlossenen Partnerschaften sowie dem Merchandising sehr wichtig und relativ planbar für den Club geworden.

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Sk. Tarekul Islam

BBA,MBA(DU)? CA-Partly Qualified?Assistant Chief Accountant-Radisson Blu Dhaka Water Garden
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In my experice, to identify and prioritize cash management risks, one should understand organization’s cash management process, assess internal controls, identify external risks, categorize and prioritize risks, develop risk mitigation strategies, and monitor and review risk management process regularly.

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Kayode Olatunji

Cybersecurity Enthusiast//Cash Officer//CCTV//Control Room Officer//Surveillance//Access Control//Data Analyst
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To have an efficient Cash Management System, adequate preparation and planning procedures need to be in place. After identifying various risks and vulnerabilities which definitely will varies within different organisations depending on factors such as regions/locations, size, and industry type (production or service). The best approach is to categorised the risks between high and low impact, while finding the best way to mitigate them.

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Mohamed Hafez

Assistant Manager @ EBANK | Key Account Management, FinTech, Digital implementation & sales and cash management
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* Understand your cash flow: Analyze your cash inflows and outflows to understand your current cash position and forecast future needs. * Identify cash management risks: Look for vulnerabilities in your processes related to internal controls, fraud, technological failures, and external factors like economic downturns. * Prioritize risks: Assess the likelihood and impact of each risk. Focus on risks that can cause significant cash flow disruptions. * Develop mitigation strategies: Implement controls to safeguard your cash assets, diversify your funding sources, and maintain a buffer to absorb unexpected shortfalls. * Monitor and review: Regularly evaluate your cash flow and risk management strategies to ensure their effectiveness.

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2 Identify your cash management risks

The next step is to identify the potential risks that can affect your cash management. A risk matrix can be used to categorize these risks based on their likelihood and impact. Currency risk, for example, is the risk of losing value due to changes in exchange rates between different currencies. Fraud risk is the risk of losing cash due to theft, embezzlement, or misappropriation by internal or external parties. Operational risk is the risk of losing cash due to errors, inefficiencies, or disruptions in your cash management processes or systems. Lastly, compliance risk is the risk of facing penalties, fines, or legal actions due to non-compliance with laws, regulations, or standards related to cash management.

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Folashade Eyinola (Odusanya)

JMSB GDBA graduate, PSM,SAP (SCM), Prince2,CertDA, FCCA
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There’s also cash flow risk- delays to inflow such that a company is not able to meet their obligations. A mismatch in inflow and outflow timing which can’t always be controlled. It can be mitigated by bank instruments such as overdraft, LOC etc

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3 Prioritize your cash management risks

The third step is to prioritize your cash management risks based on their severity and urgency. You can use a risk heat map to visualize your risks and rank them according to their priority. You can also use a risk score to quantify your risks and compare them with your risk appetite and tolerance. The risk score is calculated by multiplying the likelihood and impact of each risk. The higher the risk score, the higher the priority.

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Dominik Ostermeier

Treasury & Payment Manager @ FC Bayern München
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Für ein weiteres geplantes eigenes Projekt spielt Fremdkapital eine entscheidende Rolle. Hierbei wird es wichtig sein, die Idee, den Weg der Umsetzung und die Gr??e des Markts hinreichend darzustellen. Entscheidend für den Erfolg des Projektes wird die technische Umsetzung sein. Dies hat in der Priorit?tenliste für externes Geld die gr??te Wichtigkeit. Gefolgt wird dies dies durch anschlie?ende Marketing Ma?nahmen welche heutzutage über diverse online Tools sehr gut zu tracken und auszuwerten sind um diese kurzfristig zu steuern. Sobald es hier konkreter wird und mehr Infos zu teilen gibt, werde ich dies tun.

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4 Implement cash management controls

The fourth step is to implement cash management controls to reduce, transfer, or avoid your cash management risks. You can use a risk register to document your risks, controls, and action plans. Currency hedging with financial instruments such as forward contracts, futures, options, or swaps can help lock in exchange rates and reduce currency risk. Additionally, segregation of duties among different employees or departments can prevent fraud and ensure accountability. Reconciliation between books and bank statements can detect and correct errors or discrepancies. Lastly, a compliance audit of cash management policies, procedures, and records helps ensure compliance with laws, regulations, and standards.

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5 Monitor and review your cash management risks and controls

The final step is to monitor and review your cash management risks and controls on a regular basis. You can use key performance indicators (KPIs), key risk indicators (KRIs), and dashboards to measure and report your cash management performance and risk exposure. You can also use feedback, audits, and tests to evaluate and improve your cash management controls. You should update your risk assessment and control implementation as your business environment, objectives, and strategies change.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Dominik Ostermeier

Treasury & Payment Manager @ FC Bayern München
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Als Immobilienvermittler und Makler, spielt das eigene Cash Management eher eine nebens?chliche Rolle. Natürlich gilt es auch hier rentabel zu wirtschaften, allerdings halten sich die eigenen Ausgaben in Grenzen. Was jedoch zu bedauern ist dass die g?ngigen Vermittlungsplattformen für Immobilien bei Gewerbetreibenden mittlerweile ordentlich auf den Geldbeutel schlagen. M?chte mal hier vernünftig Listen, ist man schnell bei einem vierstelligen Betrag im Monat. Deshalb bleibt es dabei kreative Wege zu finden um diese Kosten zumindest teilweise abzufedern und Objekte über andere / eigene Wege und Kan?le zu vermarkten

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How can you identify and prioritize cash management risks?

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1 Assess your cash flow sources and needs

2 Identify your cash management risks

3 Prioritize your cash management risks

4 Implement cash management controls

5 Monitor and review your cash management risks and controls

6 Here’s what else to consider

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