This presentation gives a brief insight into cash management

2. Cash – features
 It is a legal medium of exchange
 It is free from restrictions and is negotiable
 It includes notes, coins, cheques, drafts,
postal orders, savings and bank deposits
 But in actual practice money and near money
are referred to as cash

3. It includes
 The collection, concentration and
disbursement of cash
 Level of liquidity of a business
 Management of cash balance
 Short term investment strategies
 Prevents bankruptcy
 Improves profitability and
 Reduces the risk of the firm

4.  To adhere to the Ageing Schedule and make
payments accordingly for wages, salaries, taxes
etc
 To minimise the cash holdings because of the
impact of excess/ deficit cash on the profitability
of the firm

5.  (i) Preparation of Cash Budget
 (ii) Collection Processes
 (a) Concentration Banking:-
 Different collection centre will be opened in
different places to prevent postal delays.
 The centres will be opened closer to the
debtors to reduce time in despatch and
collection
 Customers mail their payments to these
centres rather than central office

6.  Cheques from regional collection centres deposited in
local banks for collection
 Surplus funds from local bank accounts transferred to
a concentration account at one of the Principal Banks
of the firm
 Wide network of collection centres helps to collect
funds quickly
 Periodical audits help to identify the bottlenecks in
collection

7.  Any deviation from the set rules easily
identified
 Selection of Collection Centres depend on the
volume of business generated in an area
 It involves a cost in terms of the Centre and
the minimum balances to be maintained in
the Current Accounts in banks.

8.  Customers mail their payments to special
Post Office Boxes called as Lock Box
 Local Collection Bank
will access them and
deposit in the
accounts and not send
to Head Quarters

9.  Cheques collected by the local banks once or
more times in a day and directly deposited in
local bank accounts.
 Statement furnished to the firm after deposit
of cheques

10. MERITS
 Reduces the time as the collection and
processing period
 Cheques are deposited in the local bank accounts
and so time is saved in cheque clearance
 This system is not popular in India
 Benefits from accelerated receipts should exceed
the incremental cost of setting up a lock box.

11.  Accelerating collections and delaying the
payments
 Payments to be made only on the due date and
not before that
 Increased use of B/E rather than cheques helps in
maximising playing the float
 Issuing more cheques and having only the
minimum balance to meet them

12.  Mail Float
 Cheque Processing Float
 Banking Procedure Float
 Billing Float

17.  An invoice is a formal document that the seller
prepares and forwards to the purchaser as a payment
request for the sale of goods/ services provided.
 The time lag between the sale
 and the mailing of the invoice
 is the billing float.

19.  It is the length of time between the purchase of
raw materials and the receipt of sales revenue.
 Formula for Cash Cycle is:-
Average Age of Inventory + Average Age of
Receivables – Average Age of Payments

20.  It is the number of
times the firm’s cash
is actually turned over
in a year.
Cash cycle duration to
be minimised to
increase the turnover
of cash.

21.  Cash Turnover = No. of days in the operation
period ÷ Duration of cash cycle (in days)