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Cash Management

Updated on April 12, 2024 , 14832 views

What is Cash Management?

Cash management relates to an effective way of managing cash. It is a process of collecting and managing cash flows. Cash management is important for both business and individual.

cash management

In business, it is a key aspect of an organisation’s financial stability. For individuals too, it is essential for financial stability.

The Importance of Cash Management

Cash is the primary asset individuals and companies use for operating expenses, e.g., employee salaries, Taxes, inventory purchases, rents, etc. Excess cash often go towards dividend distributions.

The importance of cash for individuals is equally important as it helps in managing current expenses and future savings.

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Objectives of Cash Management for Companies

  • The objectives of cash management include the following activities daily liquidity management is required for a consolidated view that is crucial for decision making
  • A negative balance should be avoided as they incur a cost there should control on account balances
  • Payments should receive on time to avoid penalties and preserve good relations with the suppliers and employees
  • Short-term credits that are less than one year are practical to avoid Insolvency and must be expected
  • Collections of the account Receivables must be collected as soon as possible

Cash Flow Management Techniques

The various techniques used to practice cash flow management.

They are as follows:

Particular Details
Accelerating collection of accounts receivable This improves cash inflow and increases cash liquidity by collecting the debts and dues from the debtors
Stretching of accounts payable One of the ways to manage cash is by extending the payment of dues. It can be done by acquiring an extended credit period from the creditors
Cost-cutting This technique looks for ways of reducing the company’s Operating Cost in order to maintain a good cash flow in the business.
Regular cash flow monitoring Cash management keeps a check on the cash inflow and outflow. It reduces debts and makes the organisation’s financial position sound.
Wisely using banking services Cash deposits, credit line, lockbox account and sweep account are some of the ways to be used efficiently.
Upgrading with technology We all could agree that digitalisation makes it convenient to maintain the financial database, spreadsheets, log, etc. This helps in assessing from anywhere anytime.
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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