Acme's International Working Capital Management essay
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Cash management for Acme international is a fundamental part of working capital management so that the firm can maintain sufficient cash required for its business operations and transactions also to avoid cash shortage. Excess cash should be invested in a more profitable manner so that it is available for the company when it is needed. Litan, Masson & Pomerleano (2001) indicated that the ideal bank for this Acme International is HSBC bank because it offers services such as management of liquidity for international corporations, and management of payables and receivables.
According to Various (2010) the latest cash management services offered by HSBC bank can have a significant impact on effective working capital management and more so to improve the company's order-to-cash cycle. HSBC bank will provide the company with receivables management processing which seeks to improve not only the efficiency but also the effectiveness of the collections cycle.
In addition, Brigham & Ehrhardt (2008) says that HSBC bank will enable Acme to speed up collection, slow down disbursements, and therefore maximize net float. The bank will enable the company to shift cash as rapidly as possible from those parts of the business where it is not needed to those parts where it is needed. One of the most important aspects in the choice of the HSBC bank is its capability to transfer funds out of the country and ensure that it facilitates foreign currency exchange for the company.
HSBC bank will enable Acme international to consolidate its banking relationships per country of its operations hence allow it to have easier control of cash flows. Various (2010) says that the bank also offers payment advising services, enabling the payers of Acme international to send and advice simultaneously with the payment instruction to the beneficiary.
Since Acme International will have will have subsidiaries in South America and Asia that import materials and parts and assemble for export HSBC will enable the company to finance the cash conversion cycle and besides that finance its transaction from the time it pays the account payable until it collects on its sales.
Furthermore, because HSBC is located in many parts Asia using the bank to facilitate its cash management and working capital will enable Acme International to centralize cash management. Brigham & Ehrhardt (2008) says that using HSBC will help the company to minimize credit risk because exporters can purchase export credit insurance through the bank, in which an insurer makes a commitment to pay the company even if the importer defaults. Through this the firm is assured of centralized management of its cash. Litan, Masson & Pomerleano (2001) indicated that through its centralized cash management system, HSBC will help Acme International to capture transactions and deliver comprehensive timely information regarding the cash position of the company. This is possible because HSBC bank has a global computer platform and a nearly ubiquitous presence.
HSBC can offer local lending sources for operating cash for Acme International. Loosvelt (2006) says that HSBC has over the last five years reorganized its investment management division to increase its investment business by using in house products when appropriate. This is enabled by HSBC's new global lending solutions that are specializing in the development of the full range products and services for local lending. Through the bank, Acme International will meet its short term investment vehicles for its excess cash balances through using the banks in-house investment capabilities.
HSCB bank will enable the company to smoothly carryout its foreign exchange services. Litan, Masson & Pomerleano (2001) says that the banks personal conversations with foreign and domestic markets because of its leadership position in the country and its capability of global infrastructure to provide a wide range of foreign exchange services. Litan, Masson & Pomerleano (2001) says that the bank has a technical platform that will assist the company with risk assessment and risk management based on their outreach and participation in global markets. As a result Acme International will be able to pay its bills in both local and other currencies through the bank.
Citibank and HSBC already dominate cash management services because they have developed automated platforms and process that facilitate global services. Litan, Masson & Pomerleano (2001) says that in Asia, these two banks are used most frequently by at least 40% of the major companies in Asia and receive above average ratings for the quality of their services.