Business

Cash Management Techniques

Cash Management Techniques

Cash management means optimal cash maintain in a business. If an excess is taken in a business, it is harmful because it does not grow profit. Contrary if the cash is taken deficit position them the liquidity crises exists. It covers a broad area of finance. It includes assessing cash flow and market liquidity.

Cash management techniques: There are several techniques of cash management. These are as follows –

(1) Speedy cash collection: By taking some method cash may be collected very speedily –

(a) Prompt payment by customers: By offering discount and preparation of bill quickly and motives the customer to early payments.

(b) Float: Float is defined as the difference between the balance shown in a firm checkbook and the balance on the bank’s records. There are four types of floats.

  • Billing float: The total time between the mailing of a check by a customer and the availability of cash to receiving him.
  • Mailing float: The delay between the receipt of the check by the payee and its deposit in the firm’s account.
  • Cheque processing float: The delay between the receipt of the check by the payee and its deposit in the firm’s account.
  • Bank float: The number of checks that have been received and deposited but have not yet has been made available to the account in which they were deposited.

(2) Concentration banking: A collection procedure, in which payments are made to regional collection centaurs then deposit in local banks for quick clearing, shortens mail and clearing float.

(3) Lack-box system: By following this system the check may be collected in this way.

(4) Avoidance of early payments: In order payments to customers may be delayed.

(5) Centralized disbursement: It is a technique commonly employed in corporate cash management that helps corporations monitor and structure their payments while benefiting as much as possible from earned interest.