This document discusses cash management strategies for businesses. It describes cash as a medium of exchange that includes notes, coins, checks, and bank deposits. It then outlines strategies for managing cash flow, including: 1) Preparing cash budgets and using concentration banking to quickly collect and deposit receipts across collection centers. 2) Implementing lockbox collections where local banks directly deposit receipts to reduce clearance time. 3) Accelerating collections, delaying payments to the due date, and using floats to the firm's advantage to maximize available cash.

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)