Cash generally refers to coins,
currency notes, cheques and draft. In broad sense cash will include cash assets
such as time deposits maintained by business concern in bank and marketable
securities. Thus in broad sense we can say that Cash refers to cash in hand,
cash at bank and other marketable securities which can be exchanged while
transaction.
Meaning of Cash Management
It is the process of planning and
controlling of cash inflow and outflow in a business or firm in such a manner
that all the business requirements are meet and achieved.
Objectives of Cash Management
§ To maintain adequate Cash Balance in business or firm.
§ To overcome unnecessary expenditures in business or firm.
§ To know the future cash requirements.
§ To reduce the cash crunches and cash risks in business.
§ To maximize the profit and wealth.
§ To maintain the stability in cash inflow and outflow of the
business.
§ To make timely payments to the suppliers
Reasons for having adequate cash balance
§ Transaction Motive:
A business or a
firm needs to maintain cash for running for their day to day operations
smoothly. Thus a business has to maintain adequate cash so that business
functions and operates smoothly without any problem or difficulty.
§ Precautionary Motives:
A business or
firm is required to maintain adequate cash for purchases, payments, meetings
and unexpected and unplanned delay in receivables so that no problem arises
while carrying out the operations. For instances a manufacturing firm has to
purchase raw material to produce the goods but the debtor failed to make the
payment now that the firm has to stop or find the alternative purchase the raw
material. Thus in order to avoid such a situation cash management is to be
done.
§ Compensation Motive:
To overcome or recover from any unexpected damage or loss.
§ Speculative Motive:
Speculative Motive refers to holding
of cash for a profitable opportunity and using the cash in the right time so as
to maximize the profit and wealth of the business.
Strategies Used in Cash Management
Various
strategies used in cash management are
§ Cash Planning:
It is a
technique where cash inflow and cash outflow is being planned and controlled.
It helps in effective utilization of available cash and avoids cash crunches in
business.
§ Cash Forecasting:
It is the
estimation of cash that would come into and go out of a firm over a specific
period of future from its future expected operations. It helps in anticipation
of cash requirements in future.
§ Cash Budgeting:
It is the estimation of the cash
required by a business for a specific period. It will helping in cash planning
to facilitate cash requirements in future.
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