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Cash flow matching is the process of making investments by the company or individual or other entity matches its incoming cash i.e. the expenditure with the outgoing cash i.e. the expenses.
The practice of matching the compensation on a portfolio to the future capital expenditure. It involves the investments in securities with a certainly expected rate of return so that the investor will be able to pay the future liabilities. The Pension funds and Annual annuities mostly perform the cash flow matching, as both of them have future liabilities that are both large and relatively easy to estimate. The portfolios that perform the cash flow matching usually invest in low-risk securities. This practice of matching the cash flow is also known as Portfolio Dedication or the Structured Portfolio Strategy. It provides the operational efficiencies by allowing all the counterparties on the system to streamline and standardize their cash flow matching process thereby facilitating the timely statements.
The major benefits of the Cash Flow Matching are:
- Cash Flow Matching matches the cash flows as they are submitted and provides users a current running balance of all expected payments and receivables. It is a real-time cash flow matching.
- Cash Flow Matching nets multiple payments to match one or more payments submitted by the counterparty for a single deal on a given date.
- It supports single and the periodic payments on the options, swaps, and equity structured products.
- It identifies the cash flow breaks and reduces the time to resolve them.
- It helps to create a single user interface to interact with all the counterparties and the major dealers are already live.
- Cash flow Matching provides a comprehensive array of detailed reports for monitoring the cash flows and bilateral nets in addition to a real-time audit trail.
Though, Cash flow matching is important to keep the track of the expenses and the inputs of the resources.
