olhon.info Education Cash Management Pdf


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Simply stated, cash management is the management of money so that bills cash, inventories, accounts receivable, plus the management of accounts payable. proper and effective cash management in a business is of paramount importance . MOTIVES The basic objectives of cash management are as follows. CHAPTER –6. Cash Management. Introduction. Cash management is one of the most important areas in the day-to-day management of the firm's deals with.

Cash Management Pdf

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PDF | On Sep 1, , Leire San-Jose and others published Treasury Management Versus Cash Management. Cash is one of your most important assets and should be managed efficiently to support your growth and financial strength. A successful cash management. Treasury and Cash Management. • Financial Strategy. • Investment Appraisal. • Risk Management. Written in partnership with the Association of. Corporate.

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This is referred to as a " lockbox " service. Lockbox—retail services are for companies with small numbers of payments, sometimes with detailed requirements for processing. This might be a company like a dentist's office or small manufacturing company. Positive pay Positive pay is a service whereby the company electronically shares its check register of all written checks with the bank. The bank therefore will only pay checks listed in that register, with exactly the same specifications as listed in the register amount, payee, serial number, etc.

This system dramatically reduces check fraud. Reverse positive pay Reverse positive pay is similar to positive pay, but the process is reversed, with the company, not the bank, maintaining the list of checks issued. When checks are presented for payment and clear through the Federal Reserve System, the Federal Reserve prepares a file of the checks' account numbers, serial numbers, and dollar amounts and sends the file to the bank.

In reverse positive pay, the bank sends that file to the company, where the company compares the information to its internal records.

The company lets the bank know which checks match its internal information, and the bank pays those items. The bank then researches the checks that do not match, corrects any misreads or encoding errors, and determines if any items are fraudulent. The bank pays only "true" exceptions, that is, those that can be reconciled with the company's files. Sweep accounts Sweep accounts are typically offered by the cash management division of a bank.

Under this system, excess funds from a company's bank accounts are automatically moved into a money market mutual fund overnight, and then moved back the next morning. This allows them to earn interest overnight.

The primary vehicles of sweeps are money market mutual funds and bank deposit products. Zero balance account A zero balance account can be thought of as somewhat of a hack. Companies with large numbers of stores or locations can very often be confused if all those stores are depositing into a single bank account.

Traditionally, it would be impossible to know which deposits were from which stores without seeking to view images of those deposits. To help correct this problem, banks developed a system where each store is given their own bank account, but all the money deposited into the individual store accounts are automatically moved or swept into the company's main bank account. This allows the company to look at individual statements for each store.

Likewise, the customers would panic for purchasing their needful even if they are not in a position to pay cash immediately.

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It is for these receivables are regarded as a connection for the movement of goods from production to distributions among the ultimate consumer. Maintenance of receivable Objectives of receivables management: The objective of Receivables Management is to promote sales and profits until that point is reached where the return on investment in further funding receivables is less than the cost of funds raised to finance that additional credit i.

Management of Accounts Receivables is quite expensive. The following are the main costs related with accounts receivables management: Cost of Management of Accounts Receivables Advantages of accounts receivable management: Accounts Receivables Management has numerous benefits.

These include: Increased Sales: Offering goods or services on credit enhances sales, by holding old customers and attraction potential customers. Increased Market Share: When the firm is able to maintain old customers and attract new customers automatically market share will be bigger to the extent new sales.

Increase in profits: Increase sales, leads to increase in profits, because it need to produce more products with a given fixed cost and sales of products with a given sales network in both cost per unit comes down and the profit will be better.

Management of Inventory Inventory management is basically related to task of controlling the assets that are produced to be sold in the normal course of the firm's procedures.

In supply chain management, major variable is to effectively manage inventory. The significance of inventory management to the company depends on the extent of its inventory investment. The objectives of inventory management are of twofold: The operational objective is to uphold enough inventory, to meet demand for product by efficiently organizing the firm's production and sales operations. Financial interpretation is to minimize unproductive inventory and reduce inventory, carrying costs.

Effective inventory management is to make good balance between stock availability and the cost of holding inventory. Components of inventory management: Inventories exist in different forms in a manufacturing company.

These include: Raw materials: Raw materials are those inputs that are transformed into completed goods throughout manufacturing process. Those form a major input for manufacturing a product. In other words, they are very much needed for uninterrupted production. Work-in-process: Work-in-process is a stage of stocks between raw materials and finished goods.

Work-in-process inventories are semi-finished products.

They signify products that need to undergo some other process to become finished goods. Finished products: Finished products are those products which are totally manufactured and company can immediately sell to customers. The stock of finished goods provides a buffer between production and market.

Stores and spares: It comprises of office and plant cleaning materials like soap, brooms, oil, fuel, light, bulbs and are purchased and stored for the purpose of maintenance of machinery.

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Component of inventory Inventory control encompasses managing the inventory that is previously in the warehouse, stockroom or store. This is to know the type of products are "out there", how many each item and where it is kept.

It means having accurate, complete and timely inventory transactions record and avoiding differences between accounting and real inventory levels. Two tools commonly used to ensure inventory accuracy and control are ABC analysis and cycle counting. The process of Inventory management consists of determining, how to order products and how much to order as well as identifying the most effective source of supply for each item in each stocking location.

Inventory management contains all activities of planning, forecasting and replenishment. The main purpose of inventory management is minimize differences between customers demand and availability of items. These differences have caused by three factors that include customers demand fluctuations, supplier's delivery time fluctuations and inventory control accuracy.

Types of Inventory The aim of carrying inventories is to separate the operations of the firm. It means to make each function of the business independent of each other function so that delays or closures in one area do not affect the production and sale of the final product.

Because production cessations result in increased costs, and because delays in delivery can lose customers, the management and control of inventory are important duties of the financial manager. There are many types of inventory.

The common categories of inventory include raw materials inventory, work-in-process inventory, and finished-goods inventory. Raw-Materials Inventory: Raw materials inventory include basic materials purchased from other firms to be used in the firm's production operations. These goods may include steel, lumber, petroleum, or manufactured items such as wire, ball bearings, or tires that the firm does not produce itself. Regardless of the specific form of the raw-materials inventory, all manufacturing firms maintain a raw-materials inventory.

The intention is to separate the production function from the purchasing function that is, to make these two functions independent of each other so delays in the delivery of raw materials do not cause production delays. If there is a delay, the firm can satisfy its need for raw materials by liquidating its inventory.

Work-in-Process Inventory: Work-in-process inventory comprises of partly finished goods requiring additional work before they become finished goods. The more difficult and lengthy the production process, the larger the investment in work-in-process inventory.

The main aim of work-in-process inventory is to disengage the various operations in the production process so that machine failures and work stoppages in one operation will not affect other operations.

Finished-Goods Inventory: Finished-goods inventory includes goods on which production has been completed but that are not yet sold. The purpose of a finished-goods inventory is to separate the production and sales functions so that it is not required to produce the goods before a sale can occur and sales can be made directly out of inventory.

Motives of inventory management: Managing inventories involve lack of funds and inventory holding costs. Maintenance of inventories is luxurious. Still there is motive to retain inventories.

There are three general motives: The transaction motive: Firm may hold the inventories in order to facilitate the smooth and continuous production and sales operations. It may not be possible for the company to obtain raw material whenever necessary. There may be a time lag between the demand for the material and its supply. Therefore, it is needed to hold the raw material inventory. Similarly, it may not be possible to produce the goods instantly after they are demanded by the customers.

Hence, it is needed to hold the finished goods inventory. The need to hold work-in-progress may arise due to production cycle. The precautionary motive: Firms also prefer to hold them to protect against the risk of unpredictable changes in demand and supply forces. For example, the supply of raw material may get delayed due to the factors like strike, transport disruption, short supply, lengthy processes involved in import of the raw materials.

The speculative motive: Firms may like to buy and stock the inventory in the quantity which is more than needed for production and sales purposes. It is done to get the advantages in terms of quantity discounts connected with bulk purchasing or expected price rise. Merits of Inventory Management There are several advantages of managing inventory in proper way. Inventory management guarantees adequate supply of materials and stores to minimize stock outs and shortages and avoid costly interruption in operations.

It keeps down investment in inventories, inventory carrying costs, and obsolescence losses to the minimum. It eases purchasing economies throughout the measurement of requirements on the basis of recorded experience.

It removes duplication in ordering stock by centralizing the source from which purchase requisition emanate. It allows better utilization of available stock by enabling inter-department transfers within a firm. It offers a check against the loss of materials through carelessness or pilferage. Perpetual inventory values provide a stable and reliable basis for preparing financial statements a better utilization.

Demerits of Holding Inventory Besides several benefits, there are some drawbacks of holding inventory. Price decline: It is a major disadvantage of inventory holding.

Price decline is the result of more supply and less demand. It can be said that it may be due to introduction of competitive product. Generally, prices are not controllable in the short term by the individual firm. Controlling inventory is the only way that a firm can counter act with these risks. On the demand side, a decrease in the general market demand when supply remains the same may also cause price to increase. This is also long-lasting management problem, because reduction in demand may be due to change in customer buying habits, tastes and incomes.


Product deterioration: It is also serious demerits of inventory holding. Holding of finished completed goods for a long period or shortage under inappropriate conditions of light, heat, humidity and pressures lead to product worsening.

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Product obsolescence: If items are hold for long time, it may become outdated. Product may become outmoded due to improved products, changes in customer choices, particularly in high style merchandise, changes in requirements.

Then this is a major risk and it may affect in terms of huge revenue loss. This allow s the company better manage risks associated with business development.

By utilizing their current cash resources better they reduce the need for additional resources provided by the bank.

This allows dimi nishing cash rent fee and insurance costs. Meanwhile, retail outlets and service providers gain access to a specialized Cash Management. It allows accounting the number of currency exchange operations and the amounts of foreign cash-in-use, within the cash management system. Other functions include calculating the profi tability of currency exchange, to recognize the best cash points to provide this service.

Therefore, Cash Management. It allows tracking the amounts of available cash for retailer and plan CIT services in an optimiz ed way.

Such integration also allows estimating the cash-in-use, allowing ba nks to better manage the risks associated with lack of cash. Such issues may occur for a numb er of reasons, including errors of service personnel or CIT staff.Cash management may be defined as the ability of a management to identify the problems related with cash which may come across in future course of action, finding appropriate solution to curb such problems if they arise, and lastly delegating these solutions to the competent authority for carrying them out.

There is an argument then that it is the broader characteristics of cooperative organization such as social ownership, people-centred objectives and their community base, rather than their precise organizational form should be advocated. Said, R. Controlling the Cash Flows: It has been observed that prediction is not an exact knowledge because it is based on certain conventions.

Lockbox—retail services are for companies with small numbers of payments, sometimes with detailed requirements for processing. There is need for the regulator to introduce cash management controls that will be applied across all the effect of cash management on the financial performance of commercial banks in Mogadishu. Subramanian, A.