Cash Management 319B. Electronic Payment System
The RBI has introduced two prevalant modes of electronic payment service:
1.Electronic Clearing Service (ECS) In ECS (credit clearing) the corporates makes multiple payments
(single debit, multiple credits) electronically instead of issuing a large volume of paper instruments. The
system is well-suited for transactions such as issuing of divident warrants, interest payments, etc. The
minimum volume for payment is 2,500 transactions per settlement and the maximum limit is Rs 50 lac
per transaction. This service is available in 46 Indian cities.
The ECS (debit clearing) is well-suited for utility companies, where they collect a large volume of small-
value payments (single credit, multiple debits) from their customers. Maximum limit for such transactions
is Rs 50 lac. This service is available in 15 Indian cities.
2.Electronic Funds Transfer (EFT) It is the most economical and the fastest way for inter-bank, inter-
city funds transfer. Though the service is available in 13 cities in India, the usage is limited due to lack of
awareness, confidence and resistance from banks.
Euromoney recently conducted a poll among financial officers at 3,000 non-financial corporates, and 415
replied from 40 countries. The respondents were asked to indicate which three banks, in their opinion,
provided the overall best cash management services. The banks were asked to rate on a scale of 5, with 1
being excellent and 5 being very poor (results in Exhibit 16.8).
Exhibit 16.8 The Euromoney cash management poll (overall ranking)
Rank Bank
1 Citigroup
2 Deutsche Bank
3 HSBC Group
4 ABN Amro
5 Bank of America
6 J P Morgan Chase
7 Standard Chartered
8 ING Group
9 BNP Paribus
10 ANZ Bank
Source: Euromoney, Jan 2003.
IN CONCLUSION
Cash management is a worthwhile activity; there is no dispute about that. Yet, this needs to be explicitly
incorporated in the day-to-day functioning of a company, for which the following guidelines could be useful:
- Measure the cash flow timeline and assess the magnitude of savings that could result from alternative
management strategies. Very few executives do this. - Conduct on-going analysis of whether or not to take cash discount offered by suppliers.
- Release cheques according to payables policy.
- Exploit mail and presentation float by judiciously choosing the day of the week, time of the day, location
of release.