March 2006 « FINANCE ACCOUNTING COACH | Free Online Accountant Reference Site

FX Management: A Practical Basic Understanding

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As financial executives, it is crucial that we at least understand:

The reasons for managing foreign exchange (FX),
The types of foreign exchange exposure that we are faced with,
Some common terms used in foreign exchange dealing,
Some simple rules we should follow when transacting FX with FX dealers,

Why do we need to manage FX? Some reasons are:

With proper FX management, a company’s competitive position and shareholder value can be protected,
It can help reduce the negative effects of radical exchange rate movements on financial results,
Improve strategic decisions

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Credit Management:What is the KPA and KPI of a Credit Manager?

In my article on the Role of Finance, I have included a topic on Targeted Performance Management (TPM).

By setting targets to the credit personnel employee, this will directly enable the objectives of the company to be achieved. The employee himself/herself will have a better focus and knows exactly what Managements wants from him/her and others.

The below suggest at least those KPA and KPI which you should put up in the TPM Worksheet of the Credit manager:

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Credit Management: Costs in Extending Credit & ROI on Receivables

Costs in Extending Credit:
Do you know what are the costs in extending credit? Well, let’s hope that your answers include the following:

Cost of capital tied up in debtors,
Cash discounts,
Staffing costs of sales, ledger administration,
Expenses on printing, stationery, postage, space, equipment, etc.
Debt recovery costs, e.g. legal, credit insurance and debt collection agencies,
Bad debts.

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Credit Management: Setting Up DSO Targets

Setting DSO target for Cash Collection

What if my director said to me, “I want you to achieve only 70 Days Sales Outstanding for this coming month September 2005.” How then do I calculate the cash required to achieve 70 DSO?

Illustration:
Assuming that for August 2005’s DSO is 75 days and the scenario is as below:

August’05	31 days	Sales value $1,500,000
July’05	31 days	Sales value $1,000,000
June’05	13 days	Sales value $ 650,000	(out of total sales of $1,500,000 x 13/30 )
Total	75 days	$3,150,000	Receivables