"Cash and Working Capital Management in the Czech Republic"

This paper outlines the changing financial scene in The Czech Republic, which is following the global pattern of institutional investors taking over the role of commercial banks as relationship banking is gradually giving way to transaction-driven banking. Investment-grade companies have become more reliant on direct financing and less reliant on intermediated financing. This is due both to reluctance by banks to extend credit facilities to high-grade corporates as they search for more lucrative returns on capital, and by the growth in the supply of capital by institutional and other non-bank investors. This growth in direct financing has been predominately in the form of unsecured and unregistered commercial paper issues. The relatively high Czech reference interest rates in the late 1990’s influenced the development of company debt financing, forcing companies to become more sophisticated and dynamic in their use of debt instruments and hedging tools as they attempt to manage the subsequent interest rate risk. The objectives of cash management are straightforward – maximise liquidity and control cash flows and maximise the value of funds while minimising the cost of funds. The strategies for meeting such objectives include varying degrees of long-term planning requirements. Also, like everywhere in the world, much treasury activity in the Czech Republic is concentrated on cash management. This includes financing the corporation, administration of debts (loans, bonds, commercial papers, etc.), good relationships with the banks, payments to suppliers and collections from customers, control of foreign currency and interest positions according to the company’s needs for finance, and finally the reporting and technical support of all these functions. The use of cash pooling as a global standard for concentrating cash into the main bank account of the firm, has very quickly found favour in corporates in the Czech Republic