Are you operating a foreign-invested enterprise (FDI) in Vietnam? Are you facing challenges in managing your company’s cash flow? Cash management is not just a basic textbook concept – it is the art of survival for all FDI businesses, especially amidst the economic volatility of 2025.Below, KMC provides a comprehensive guide to cash management and key strategies to manage your cash flow most effectively.
What is Cash Management?
Cash Management is the practice of controlling, executing financial operations, and planning activities related to the inflow and outflow of a company’s cash. Cash management encompasses all methods and plans used to manage financial resources effectively, including optimizing cash flow, maintaining sufficient liquidity for business operations, and minimizing idle cash.
For FDI enterprises in Vietnam, this is a three-variable equation: (1) Ensuring timely payments, (2) Optimizing financial costs, and (3) Complying with multinational regulations.
Why is Cash Management Especially Challenging for FDI Enterprises?
Cash management is one of the most complex financial functions, especially for FDI enterprises, due to several key factors:
• Cross-currency risk: 68% of Japanese companies in Vietnam reported losses due to VND/JPY exchange rate fluctuations (JETRO Report 2024)
• Liquidity pressure: USD 3.5 billion in parent company loans mature quarterly from FDI enterprises
• Opportunity cost: Every idle VND 1 billion not invested can result in a loss of VND 120–150 million in annual profit
The Role of Cash Management
Cash is considered a non-earning asset; therefore, the goal of cash management is to minimize the amount of cash held while still ensuring a balanced cash inflow and outflow for the business.
In addition, cash is a fundamental asset that guarantees payment processes during daily business operations such as salary payments, dividend distributions, tax prepayments, and other transactions.
Optimal Cash Management Strategies for FDI Enterprises
To effectively manage cash, businesses—especially FDI companies—can adopt the following roadmap:
- Analyze Historical Cash Flows: Use specialized software to identify seasonal patterns and analyze historical cash flows for deeper insight into the company’s cash movements.
- 12-Month Cash Flow Forecast: Combine data from five sources—sales, accounts payable, payroll, tax, and investment—to forecast cash inflows and outflows over the next 12 months and ensure cash flow planning is optimized.
- Establish Optimal Cash Reserves: Apply the Baumol or Miller-Orr models tailored to your industry to determine the optimal level of cash reserves.
- Integrate Automation Tools: Effective cash management requires combining automation tools to save time and effort. These tools support efficient management and provide real-time alerts when safe thresholds are exceeded.
- Design Contingency Mechanisms: Always maintain contingency by keeping 15–20% of unused short-term credit lines available for unexpected needs.
- Optimize Foreign Currency Management: FDI enterprises should use forward contracts for at least 70% of their fixed foreign currency needs to optimize exchange rate management.
- Conduct Regular Evaluations: Analyze weekly performance using the Cash Conversion Cycle (CCC) and monitor the movement of funds closely.
Comprehensive Cash Management Solutions from KMC Experts
To professionally and efficiently optimize cash management, businesses can turn to KMC’s team of experts.
With over 15 years of experience in providing tax and accounting consulting services to FDI enterprises, KMC has supported thousands of companies—especially Japanese businesses—in designing and implementing the most effective cash management solutions.
Key benefits of effective cash management include:
• Reducing cash reserves by 30–45%
• Accelerating receivables collection by an average of 18 days
• Reducing liquidity risk by 65%
With an experienced team of experts, KMC delivers tailored cash management solutions that meet the unique needs, business models, and industry characteristics of each enterprise.
For personalized consultation and support, contact us today via hotline: +84 91 988 9331.
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