(the whole, the region, the individual affiliate), disbursements, tax—influence the
management process.
5.4 INTERNATIONAL CASH MANAGEMENT. The typical multinational firm pos-
sesses cash flows between the parent and its subsidiaries, the subsidiaries and their
suppliers, the subsidiaries and their customers, and between subsidiaries themselves,
all of which are generally processed through banking institutions.
(a) International Cash Management Goals. The theory of international cash man-
agement is the same as that of domestic cash management: the maximization of the
firm’s financial resources is achieved by effectively receiving payments as fast as
possible while taking advantage of all liability provisions, payable periods, which are
low in cost. Simply put, the business would prefer to conduct the same level of busi-
ness activity with an ever-decreasing balance sheet. The complex part is not the the-
ory, but the practice.
There are two primary reasons why cash is transferred across national boundaries.
First, for the payment for resources used such as materials, technology (fees), prop-
erty rights (royalties), financing and debt service (principal and interest), or invested
capital (dividends). The second reason is for the effective deployment or reposition-
ing of funds in order to obtain higher rates of return, assure accessibility to funds,
minimize currency risk, minimize total capital invested in working capital forms, and
to minimize the global tax bill of the firm.
(b) Mechanics of International Cash Management. The international cash manage-
ment techniques employed for the payments depend on whether the payment is to be
associated with a related or unrelated third party. The primary distinction arises from
the ability of the parent to dictate or coordinate cash flow payment methods and tim-
ing between internal units, often without true market incentives (such as discounts),
as opposed to third-party payments which are obviously less controllable.
The sample U.S.-based multinational in Exhibit 5.4 illustrates a common “map”
to the cash flow structure of a global firm. The subsidiaries in France and Spain are
each individually faced with the common cash management and working capital
management all firms everywhere face—traditional domestic treasury. The primary
conduit for cash management in each country is the utilization of local banking and
cash management services.^9 International treasury, either through a regional treasurer
or through a representative of the parent company, would typically consider and eval-
uate any of the following potential techniques for the management of payments with
unrelated parties:
- Timing of billing
- Use of lockboxes or intercept points
- Negotiated value dates
5 • 12 INTERNATIONAL TREASURY MANAGEMENT(^9) The electronic data interchange (EDI) and electronic funds transfer (EFT) systems in Western Eu-
rope are relatively sophisticated compared to the majority of similar systems worldwide. The barrier is
often not the linkage of real time cash management between the customers and suppliers in the local mar-
ket with the subsidiary, but rather the cross-border linkages, including the parent.