Cash Management

1. Cash and Receivable
Management
Mrs. Bhargavi Bora Vanveru (Roll No. 06)
Mr. Abhay Khane (Roll No. 11)
Financial Management
MHA Sem 3
Dare: 22/12/2022

2. What is Cash Management?
It is the process of collecting and managing cash flows. Cash
management can be important for both individuals and
companies. In business, it is a key component of a company's
financial stability. For individuals, cash is also essential for
financial stability while also usually considered as part of a total
wealth portfolio.

3. Types of cash management

4. Cash flows from operating activities
This is one of the vital types of cash management. Here, a
company’s cash flow statement is explained.
The sources and uses of cash from ongoing regular business
activities are illustrated.
This is done for a particular financial period. This reflects any
changes in the working capital for the business.
 This is also where you can assess your business’ financial
health.
If you’re a bit low on cash to cover day-to-day operations you
may also look for lenders with low interest rates and apply
for cash flow loans to keep up with other expenses.

5. Free cash flow to equity
In cash management, this is the amount of cash a business
generates.
This amount can be distributed to shareholders in the event of
a good performance of the business.
This is important in determining the financial position of your
business.
This amount is calculated by taking the cash from business
operations less capital expenditures of the business.
Your business should always have increased cash flows to
keep it above water.

6. Free cash flow to the firm
Free cash flow to the firm (FCFF) represents the amount of
cash flow from operations available for distribution after
depreciation expenses, taxes, working capital, and investments
are accounted for and paid.
FCFF is essentially a measurement of a company’s profitability
after all expenses and reinvestments.
It is one of the many benchmarks used to compare and
analyze a firm’s financial health.
It is through this evaluation that a firm can determine the
amounts paid out to investors.

7. The net change in cash
The net change in cash is the amount by which a company’s cash
balance increases or decreases in an accounting period.
When you own or consider buying stock in a company, it is
important to monitor its net change in cash to make sure it
doesn’t run out.
It is also important to know this cash management type.
It is through it that the effectiveness of your revenue-generating
strategies can be determined.
It will thus enable you to adjust accordingly.

8. Importance of Cash Management
The primary method used by businesses to settle their financial
liabilities is cash. However, money is not the same as value. When
all of a company’s assets are considered, it may be worth $1 million,
but it might only have $50,000 in cash. Therefore, businesses need
to be careful not to spend their money faster than they collect it as
receivables.
If a company’s available cash falls short of the amount needed to
cover its current liabilities, it might sell its assets to raise money or
take out a loan. A business that doesn’t have enough cash to
purchase inventory risks potential sales opportunities.

9. Functions of Cash Management

10. Inventory control:
It is aided by effective cash management—lower liquidity results from
trapped sales, which are indicated by higher inventory. As a result, a
company should constantly concentrate on speeding up its cost of being out
of stock to enable cash flow.
Receivables Administration:
To increase sales, a business concentrates on improving its invoices.
However, the credit limit and period concerning cash receipts may be
anywhere from 30 to 90 days. This indicates that even though the company
has every sales record, the funds from such dealings are still pending.
Management of Payables:
This is another essential part of the system of managing cash where
discounts and cash credit terms can help businesses.

11. Objectives of Cash Management

12. Benefits of Cash Management
The benefits of cash management are listed below:
Estimating cash profits is possible, as opposed to only gains from
unpaid bills, sales of credit, etc.
It aids in the detection of cash theft.
It makes it possible to shorten the cycle of working capital.
It assists in rewarding those debtors who pay their debts more
quickly.
It quickens an organization's activities.

13. Limitations of Cash Management
• Poor cash flow management:
Companies must be intensely aware of receipts and cash payment
timings. They should also ensure that they receive ample amounts
to pay forward as payables.
• Delayed collection of cash:
Revenue is estimated at the time of a transaction, but money might
get delayed for up to 90 days. Companies may record high profits
on the basis of their revenue. Still, they can face cash deficits if
they have delayed sale collections even after running profits
regularly.

14. What is Receivable Management?
Account receivables refer to the outstanding invoices or money
which is yet to be paid by your customers.
Until it is paid, such invoices or money is accounted as “Accounts
Receivables”. Also known as “Bills Receivables”.
You need cash all the time to keep your business running
smoothly and ensuring the accounts receivables are paid on time is
essential to manage cash flow efficiently.
And as the term suggests, management of your accounts receivable
is called receivable management.

15. • The entire process of defining the credit policy, setting payment
terms, sending payment follow ups and timely collection of the due
payments can be defined as receivables management. Management
of Receivables is also known as:
1) Payment Collection.
2) Collection Management.
3) Accounts Receivables.

16. Objectives
Helps to
improve
cash flow
Reduces
losses
incurred due
to bad debts.
Improved
customer
satisfaction
Boost up
sales
volume

17. Steps for account receivable management
Customer invoicing mentioning credit policy and date
due.
•Monitoring the due through a collection and
follow-up schedule.
Recording transactions with their due dates.
Generating bills that are overdue and bills due
chronologically.
Sending letters of reminder with bill details and due date.

18. •When payment is received, a receipt, adjustment entry
and sales account are to be recorded accordingly.
•If cash discounts are allowed for early payment,
a suitable adjustment entry is reflected in the
accounts under the receivable account.

19. Example
• On 10th June 2021, Raj Enterprises sold goods worth Rs 50,000 to
Sunil Traders on credit for 15 days.
• From the 10th of June till the time of day the bill is paid by Sunil
Traders, Rs 50,000 is an account receivable in the books of Raj
Enterprises against the account of Sunil Traders.
• Now assume that on the 20th of June, Sunil Traders pays Rs 30,000
to Raj Enterprises.
• This amount of Rs 30,000 is reduced from Sunil Trader’s account.
• Post the adjustment entry, the overall accounts receivable of Sunil
Traders will be Rs 20,000.

20. Scope of
Receivable
Management
•Formulatio
n credit
policy.
•Credit
Evaluation
Credit
Control
•Better
Competi-
tion

21. Account Receivable Cycle.

22. Nature of Receivable Management
• Regulate Cash Flow
Receivable management regulates all cash flows in an organization.
It controls all inflow and outflow of funds and ensure that an
efficient amount of cash is always available. Proper management of
receivables enables organizations in efficient functioning at all the
times.
• Credit Analysis
It perform proper analysis of customer credentials for determining
their credit ratings. Monitoring and scanning of customers before
provide them any credit facility helps in minimizing the credit
risk.

23. • Decide Credit Policy
Receivable management decides the credit policy and standards as per
which credit facility should be extended to customers. A company may
have a lenient credit policy where customer credit-worthiness is not at all
considered or a stringent policy where credit-worthiness is considered for
providing credit.
• Credit Collection
Receivable management focuses on efficient and timely collection of
business payments from its customers. It works towards reducing the time
gap in between the moments when bills are raised and payment is
collected.
• Maintain Up-To-Date Records
Receivable management maintains a systematic record of all business
transactions on a regular basis. All transactions are maintained fairly in the
form of proper billing and invoices which helps in avoiding any confusion
or settling of disputes arising later.

24. Conclusion
“Receivables Management is the diligent tracking and
methodical practice of following up on and collecting
payments”
-(Wertz, n.d)
A company can properly manage its accounts receivable if it
knows what the accounts receivable turnover rate is and the
average collection period. By using this information, a
company can evaluate its credit policy and make changes to
ensure a higher rate of accounts receivable turnover and
increase its cash flow.