Cash management is the process of forecasting, collecting, disbursing, investing, and planning for cash a company needs to operate smoothly. Cash management is a vital task because it is the most important yet least productive asset that a small business owns. A business must have enough cash to meet its obligations or it will be declared bankrupt. Creditors, employees and lenders expect to be paid on time and cash is the required medium of exchange. However, some firm retain an excessive amount of cash to meet any unexpected circumstances that might arise. These dormant cash have an income-earning potential that owners are ignoring and this restricts a firm’s growth and lowers its profitability.… Read the rest
Cash Management
Cash Collection and Payment Systems
Cash Collection Practices
Cash management is intimately connected with realization from debtors. Prompt collection from debtors is preferred for that involves less money being locked-up in accounts receivables, less bad debts, etc. How can collections be prompted? We can give cash discount to prompt collections. Besides a system of decentralized collection is suggested for prompt collections.
- Concentration Banking is a technique of decentralized or prompt collection. Concentration banking system works this way: (i) there is decentralized billing of customers, so that immediate dispatch of goods, invoices are made and dispatched, (ii) customers are directed to send the remittances to corresponding regional offices, (iii) regional offices on receipt of remittances send them to banks for collection, (iv) After collection is effected, after retaining a minimum sum, the regional office sends the balance on account to the head-office bank account.
The Concept of Cash Management
Concept of Cash
“Cash, like the blood stream in the human body, gives vitality and strength to business enterprises.”
Though cash hold the smallest portion of total current assets. However, cash is both the beginning and end of working capital cycle – cash, inventories, receivables and cash. It is the cash, which keeps the business going. Hence, every enterprises has to hold necessary cash for its existence. Moreover, steady and healthy circulation of cash throughout the entire business operations is the basis of business solvency.
… Read the restIn the words of R.R. Bari, “Maintenance of surplus cash by a company unless there are special reasons for doing so, is regarded as a bad sigh of cash management.”