Cash management
The bank for a changing world
Short term liabilities arising from purchases of goods and services from suppliers. Often abbreviated to AP. Effective AP management is essential to minimise costs and risk of error or fraud. AP is a component of cash flow forecasting and working capital management.
Short term assets arising from collections due from customers. Often abbreviated to AR. Effective AR management is essential to limit credit risk to customers and ensure prompt cash collection. AR is a major component in cash flow forecasting and working capital management.
Automated Clearing House. An electronic clearing system for exchanging payment orders between financial institutions, usually electronically. ACHs are typically used for low value, non-urgent payments, including bulk payments such as salaries.
This is a guarantee for the purchaser/importer covering the reimbursement of the down payment(s) paid by the latter in case the supplier/exporter does not respect his delivery or performance obligations and would refuse to reimburse the down payment(s). One guarantee may cover progress payments.
Abbreviation for ''Automated Teller Machine''. This is a device usually operated by a bank to enable customers to use cards to withdraw cash from their accounts and access services such as balance enquiries, funds transfers, cheque or cash deposit, top up of prepaid cards or mobile phones.
Term for a commercial bill issued or accepted by a bank, which can be at a discount. See Banker''s Acceptance.
A bank guarantee is an irrevocable bank commitment by signature, by order of one of its customers (the applicant), to pay a certain sum of money to a beneficiary, upon receipt of a complying demand from him informing the bank that the customer failed to fulfil its contractual obligations. The bank guarantee is a security given by the bank to protect the beneficiary against the applicant’s default. The bank only commits to pay, in whole or in part, in one or in several drawings, the amount stated in the guarantee. This means that the bank will not, and is not liable to deliver the goods or to assume responsibility for carrying out a project. Bank guarantees may have multiple purposes: tender guarantee, advance payment guarantee, performance guarantee, retention money guarantee or payment guarantee.
A Bank Payment Obligation (BPO) is an irrevocable undertaking given by an Obligor Bank (the Buyer’s Bank) to a Recipient Bank (the Seller’s Bank) to pay a specified amount under the condition of a successful electronic matching of data or acceptance of mismatches.
A negotiable draft drawn and accepted by a bank. The bank agrees to pay the face value of the instrument to the holder on a specified future date.
Bank Identifier Code. An identifier code conforming to ISO standards that identifies a bank''s address (also know as the SWIFT address).
This type of bond is intended to guarantee the genuineness of the bidder. The purchaser/importer will be indemnified:
- if the bidder withdraws their bid during its validity; if a successful bidder refuses to sign a contract or upon signature of the contract;
- if after signing the contract, the bidder does not provide the guarantees required by the purchaser in the invitation to tender.
An arrangement between two parties (which could be entities within the same group or third party organisations, but more frequently the former) to offset transactions between the parties and settle only the difference between them, either on a net or gross basis. This reduces the number of physical transfers that take place and therefore transaction costs. Bilateral netting cycles are typically run on monthly or another regular cycle.
A payment order directing another person or company to pay a defined amount of money on a specified future date, similar to a cheque or promissory note. A bill of exchange has a named beneficiary but is transferable if endorsed. Also known as commercial bills, trade bills or eligible bills.
A term for physical cash pooling where account balances within a pool (which could be domestic or regional) are physically transferred to or from a header or master account automatically by the bank at at an agreed interval e.g. daily. Most cash concentration is performed on a zero balancing basis i.e. funds are either transferred to or from the header account so that the pool account balance is zero. However, in some cases, target balancing is used, so that there is an agreed positive balance on one or more than one pool account.
The process of monitoring future cash flow whether on a short (up to one week), medium (up to three months) or long (up to one year) basis. Cash flow forecasts typically include all treasury-related flows (investments, loans, FX and derivative transactions), tax payments, dividends, salaries and expenses, accounts payable and accounts receivable for the entity or entities included in the forecast. Cash flow forecasts are used to manage the working capital, liquidity and foreign currency risk of the business.
A generic term for managing liquidity by consolidating cash into a single account (whether physically or notionally). Cash pooling may take place within one country or cross-border. See Cash Concentration and Notional Pooling.
Economic Community of Central Africa States. The aim is to promote regional economic co-operation amongst its members: Angola; Burundi; Cameroon; Central African Republic; Chad; Republic of the Congo; Democratic Republic of the Congo; Equatorial Guinea; Gabon; Sao Tome and Principe.
A certificate of deposit (or CD) is a tradable term deposit instrument where an investor receives a certificate of deposit from a financial institution, typically a bank. The CD is issued with a maturity date and interest rate and can be traded on the secondary market. They may be negotiable or non-negotiable. CDs can be issued for a period from 1 month to 5 years, but are typically 6 months or less.
A manual payment instrument that involves a written order from one party to another to pay a specified sum. Cheques are in decline or obsolete in many parts of Europe, but are commonly used in countries such as France and the United States.
See Bill of Exchange.
Commercial paper (CP) is a short-term unsecured promissory note issued by a corporation or other entity as a means of financing. CP can be issued for up to 365 days in Europe, but is more commonly issued for 90 days. In the United States, CP can be issued up to 270 days, but more commonly 30 days. CP is usually traded at a discount (i.e. the investor pays the principal net of interest, and receives the full principal amount on maturity) with a fixed yield. CP can be traded on the primary and secondary market.
Connexis Connect is a host-to-host secure channel that connects customers to any of BNP Paribas’ e-banking solutions. It is particularly well-suited to organisations seeking a high level of automated transmission performance to access BNP Paribas’ solutions using the corporate’s existing protocols and file formats.
BNP Paribas’ dedicated web-based platform design to streamline operational processes, manage payables and receivables and facilitate communication across the buyer and supplier network.
Connexis Trade is BNP Paribas'' trade finance platform. It is a very user-friendly web-based platform designed to optimise the management of international trade transactions. Connexis offers a high level of security (through data encryption) and accessible 24/7. It can be adaptable to each customer''s needs including personalised set-up for each user profile, with multilingual capabilities. A dedicated hotline for any technical questions is also available. Connexis Trade includes a variety of modules to support customers'' specific international trade finance needs, including: Import & Export letter of credit, Import & Export collection, Bank guarantees issuance, Import & Export Standby letters of credit, Financing Requests.
A payment card that allows the owner to obtain goods and services at POS or online on credit terms. The balance on the card is presented to the user on a monthly basis for settlement. Interest is payable on amounts not settled on demand.
Deadline for sending transactions to a bank allowing for them to be processed according to an underlying service level, typically same day execution for urgent transactions and next day execution for non-urgent transactions.
A payment card issued by a bank or other financial institution, which enables the holder to obtain goods and services at POS or online as an alternative to cash. There is no credit agreement involved, so sufficient funds must be available in the holder''s bank account. The holder''s bank account is debited with the amount automatically, and no interest is chargeable. Cards can also be used to withdraw cash at ATM machines.
Refers to a deposit account, which may or may not be interest-bearing, with immediate access to funds on demand.
An instruction from an organisation or consumer to its bank to collect one amount, or regular amounts (which may be for varying amounts) from their account. These are often used to make regular payments such as utility or telecoms bills, fees, mortgage or insurance payments, licenses and charitable donations.
A documentary collection is a process in which the exporter instructs their bank to forward documents, related to the export of goods, to the importer’s bank with a request to present these documents to the importer for payment, indicating when and on what conditions these documents can be released to the importer. The liability of the buyer’s bank is limited to presenting and releasing documents according to the instructions received (i.e. against payment or against acceptance of a bill of exchange) and the URC 522 (ICC Uniform Rules for Collections).
A documentary credit is an irrevocable commitment of the buyer/importer’s bank (the issuing bank) in favour of a supplier/exporter (the beneficiary), to honour (i.e. to pay at sight; or to incur a deferred payment undertaking and to pay at maturity; or to accept a draft drawn by the beneficiary and to pay it at maturity, as the case may be) a presentation, provided that the supplier submits a complying presentation (i.e. a presentation of the documents specified in the letter of credit (L/C), in conformity with the terms and conditions of the L/C and the applicable international rules).
European Central Bank. https://www.ecb.europa.eu/home/html/index.en.html
A reloadable prepaid card used for small purchases such as travel as an alternative to cash or card transactions.
Economic and Monetary Union of the European Union. An umbrella term for the group of policies that aim to combine the economies of all member states of the European Union in three stages. The 18 Eurozone states and the 10 non-euro states are EMU members. To adopt the euro as a national currency, a member state needs to reach the third EMU stage.
Regulations to prevent or restrict certain foreign currency transactions in order to protect a country''s financial position or the value of its currency.
Gross domestic product. Defined by OECD as "an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs)."
Gross national product. Defined as the market value of all the products and services produced in one year by labour and property supplied by the citizens of a country. Unlike GDP, which defines production based on the geographical location of production, GNP allocates production based on location of ownership.
A funds transfer system in which settlement of payments or securities transactions takes place individually i.e. on an order-by-order basis, without netting debits against credits.
The header account, or master account, is the account in a cash pool into which funds are concentrated (either physically or notionally) and which is used to fund other accounts in the cash pool.
International Bank Account Number. An identifier conforming to an agreed ISO standard for identifying the beneficiary bank account. This is used in cross-border payments and is a requirement for SEPA Credit Transfers, irrespective of the location of the beneficiary.
International Monetary Fund. http://www.oecd.org
The cost to borrow money or the return on investing money expressed as percentage per annum
A solution whereby a bank (e.g. through a trading company) enables a corporation to reduce the amount of working capital tied up in inventory. The bank (via a trading company) owns the inventory until it is required in production. This allows delayed recognition of inventory to free up cash trapped in the working capital cycle and optimise financial performance.
The fee applied to funds transfers between resident and non-resident entities, usually calculated as a percentage of the transaction value.
See Header Account.
Money Market Funds (or MMFs) are investment funds such as mutual funds or unit trusts that invest in money market securities. In Europe, there are two forms of MMF, referred to as Short-Term MMFs and MMFs. These are similar in composition and risk profile, except that MMFs can invest in treasury (government) bills and in instruments with a longer weighted average maturity than short-term MMFs. Furthermore, short-term MMFs can have either a constant net asset value (NAV) or variable NAV, while MMFs have a variable NAV.
In the United States, MMFs are referred to as Rule 2a-7 funds. Regulations in June 2014 stipulate changes to these funds that fund managers must phase in over the next two years. These include the removal of credit ratings and shift from constant to variable NAV.
MMFs are often used by institutional investors for investing short term cash as they are highly diversified, with same-day access to funds.
An arrangement between three or more parties (which could be entities within the same group or third party organisations, but more frequently the former) to offset transactions between the parties and settle only the difference between them, either on a net or gross basis. This reduces the number of physical transfers that take place and therefore transaction costs. Multilateral netting cycles are typically run on a monthly or another regular cycle.
A funds transfer system which permits settlement on a bilateral or multilateral basis (see bilateral netting and multilateral netting).
Bank account held by an individual or organisation that is not resident in the relevant country, according to the country''s regulatory definition of residency.
A liquidity management technique for offsetting account balances, whether in-country or cross-border, without physically transferring cash into a header account. This enables interest compensation across accounts.
Organisation for Economic Co-operation and Development. http://www.oecd.org
Twenty countries are members, as follows: Australia; Austria; Belgium; Canada; Chile; Czech Republic; Denmark; Estonia; Finland; France; Germany; Greece; Hungary; Iceland; Ireland; Israel; Italy; Japan; South Korea; Luxembourg; Mexico; Netherlands; New Zealand; Norway; Poland; Portugal; Slovakia; Slovenia; Spain; Sweden; Switzerland; Turkey; United Kingdom; United States.
A solution to optimise trade payables. A Trade Payables Programme is designed to assist suppliers by enabling them to discount (via the bank0 all invoices due from a company. Such a programme typically helps suppliers to manage their liquidity in case of extension of the payment terms.
With this type of undertaking acting on the importer’s order, the issuing bank guarantees the payments made by the importer to the exporter under the terms of the contract. A payment guarantee can cover either the partial or full amount of a single transaction or business flow.
This type of guarantee is aimed to reassure the purchaser about the technical capacity of the supplier to fulfil its contractual obligations. The bank commits to pay to the purchaser a certain sum of money, if the exporter fails to perform or performs imperfectly.
Point of sale. Refers to retail outlets with the ability to accept card transactions.
Purchasing power parity. This is an economic technique used to determine the relative value of different currencies. It involves estimating what the exchange rate between two currencies would have to be in order for the exchange to be equivalent to the purchasing power of the two countries'' currencies.
A signed agreement promising to pay a specified person a particular sum of money on a fixed date or on demand.
Frequently abbreviated to RTGS. Refers to a gross settlement system that processes and settlements on a continuous basis in real-time.
Discounting of trade receivables is the monetization of trade receivables which results in a reduction of the supplier’s DSO (Days Sales Outstanding). A bank purchases, on a non-recourse basis, the supplier/seller’s trade receivables from his obligors.
A repurchase agreement or ''repo'', refers to the sale of a security on one date with an agreement for the seller to buy it back on a later date. The difference between the sale and repurchase amount is effectively the rate of interest, or repo rate. Many repos purchased by corporate investors are tri-party repos, in that a custodian bank or clearing organisation acts as an intermediary between the two parties to the repo.
The original seller refers to this instrument as a repo, while for the original purchaser, it is a reverse repurchase agreement.
Bank account held by an individual or organisation that are resident in the relevant country, according to the country''s regulatory definition of residency.
This guarantee is designed to avoid deduction by the purchaser/importer of the last term of payment in a contract in case the equipment delivered or work performed does not conform to the contract specifications. This Guarantee enables the seller/exporter to receive full payment before final acceptance.
Please see Real time gross settlement.
Standardised Corporate Environment (SCORE) is the model for enabling non-financial corporations to access through SWIFT. Corporates registered for SCORE can interact with any banks on SWIFT that are also registered.
Please see SEPA Credit Transfer
Please see SEPA Direct Debit
The Single Euro Payments Area (SEPA) is the European Union (EU) payments integration initiative which was completed on 1st February 2014. SEPA creates an efficient, standardised electronic environment for all Euro payments and collections through harmonised payment schemes and frameworks. The key SEPA initiatives include: integrating existing national credit transfers and direct debit schemes into a single set of payment schemes (SEPA Credit Transfer and SEPA Direct Debit) and creating a SEPA for cards, aimed at ensuring a consistent customer experience when making or accepting payments with cards throughout the Euro area. Finally, the SEPA programme promotes the use of electronic payment instruments, while reducing the cost of wholesale cash distribution. SEPA currently consists of the 27 EU Member States plus Iceland, Norway, Liechtenstein, Switzerland and Monaco.
SEPA Credit Transfer (SCT) is a Euro-denominated payment of any value that operates according to the SCT scheme. The SCT was launched in 2008 and became mandatory in February 2014. All credit transfers under the SCT scheme have the same conditions whether they are paid to a counterparty within the same SEPA member country or another member country. SCT instructions need to be exchanged using ISO 20022 XML formats (from 2016 for non-Eurozone countries) and remittance data must include an IBAN and currently a BIC, but this requirement may change in the future.
SEPA Credit Transfer (SDD) is a Euro-denominated direct debit of any value that operates according to the SDD Core or SDD B2B schemes. Since February 2014, all domestic direct debit schemes in the 32 countries that comprise the Single Euro Payments Area (SEPA) need to take the form of SDD. All direct debits under either the SDD Core or B2B schemes have the same conditions whether they are paid to a counterparty within the same SEPA member country or another member country.
SDD instructions need to be exchanged using ISO 20022 XML formats (from 2016 for non-Eurozone countries) and remittance data must include an IBAN and currently a BIC, but this requirement may change in the future.
SDDs enable both single (one-off) or recurring direct debit collections with no limit on the amount. Payers have an 8 week right to refund for authorised direct debit collections and 13 months for unauthorised direct debit collections.
SEPA mandates are standardised documents for authorising direct debits, and are maintained by the creditor (as opposed to by the debtor''s bank as is typically the case for domestic direct debit schemes). Valid direct debit mandates obtained by the creditor before migration to the SDD core scheme will remain in force for SDD Core collections (the SDD B2B scheme does not replace existing direct debit schemes and therefore requires new mandates).
A tax that is applied to the purchase of shares and other assets, including real estate. Each country has specific rules relating to the applicability and rate of stamp duty.
The Standby Letter of Credit (SBLC) is a bank guarantee, payable on first demand against presentation of specified documents. The SBLC simply requires a declaration from the beneficiary stating the applicant’s default by virtue of the underlying transaction. Like any other bank guarantee, the Standby Letter of Credit may have multiple purposes: tender guarantee, advance payment guarantee, performance guarantee, retention money guarantee or payment guarantee.
An instruction given by a payer to its bank to pay a set amount of cash at regular intervals to a beneficiary''s account, and may also be known as a banker''s order. Standing orders are typically used to pay mortgages, insurance premiums or other fixed regular payments. Standing orders are used in countries such as Bulgaria, Germany, Ireland, India, Netherlands, Russia and UK.
Purchase, by the bank, of a portfolio of receivables on a non-recourse basis. The bank will purchase the receivables due from a diversified portfolio of debtors on a silent basis. The bank may apply a statistical approach to debtors and fund up to 100% of the face-value of the invoices. The bank will analyse the portfolio as a whole taking into account the historical losses, amounts of write-offs, provisions & late payments.
SWIFT (Society for Worldwide Interbank Financial Telecommunications) is a co-operative organization of banks that operates a secure network for the exchange of financial messages, including payments, between financial institutions. Access to SWIFT is available to non-financial corporations through the Standardised Corporate Environment (SCORE) or now less commonly by joining individual MA-CUGs (Member-Administered Closed User Groups). Corporates registered for SCORE can interact with any banks on SWIFT that are also registered.
SWIFT Trade for Corporates allows corporates to exchange trade finance data with its banks using the FIN/ FileAct SWIFT messaging format and the SWIFT network in a highly secure and standardised manner.
Trans-European Automated Real-Time Gross Settlement System 2. This replaced TARGET in 2007, and is owned and operated by the Eurosystem. TARGET 2 is a payment system that connects RTGS from across the Eurozone using common formats to permit cross-border payments. Payments are settled on a gross, continuous basis. TARGET2 is used for all payments involving the Eurosystem, as well as for the settlement of operations of all large-value net settlement systems and securities settlement systems handling the Euro.
Tax Information Exchange Agreement. Enables a country to request information on criminal or civil tax investigations.
A short term cash investment instrument where investors lend funds to a financial institution, typically a bank, for an agreed period and at an agreed rate of interest. Time deposits (which are frequently referred to as ''deposits'' can be for any period from 1 day up to 1 year or more. Investors do not have access to funds during the term of the deposit.
Refers to the setting of the price for goods / services sold between different legal entities of an organisation.
A negotiable debt security issued by a government at an agreed rate and maturity date. These are traded on stock exchanges in the primary or secondary market. These instruments can be referred to in a variety of ways including treasury bonds, treasury bills or treasury notes.
Please see Treasury (government) bill.
Please see Treasury (government) bill.
Please see Treasury (government) bill.
West African Economic and Monetary Union. A regional group of fifteen West African countries that aims to promote economic integration across the region. Members are: Benin; Burkina Faso; Cape Verde; Gambia; Ghana; Guinea; Guinea-Bissau; Ivory Coast; Liberia; Mali; Niger; Nigeria; Senegal; Sierra Leone; Togo.
Tax retained at source, often on dividend and interest income. Each government has individual rules relating to the applicability and rate of withholding tax.