This document discusses cash management for business organizations. It covers controlling cash levels, controlling cash inflows and outflows, and optimally investing excess cash. Tools for cash planning include net cash forecasts and cash budgets. Cash budgets in particular are important for evaluating financial performance, setting dividend policies, and planning by indicating cash surpluses or deficiencies. Controlling cash outflows is also discussed. Overall the document provides an overview of key aspects of effective cash management for organizations.

1. CASH MANAGEMENT
Dr. A. K. ASTHANA
Director
1

2. INSTITUTE OF COOPERTIVE MANAGEMENT
E – 8/77, TRILANGA ROAD, SHARPUR BHOPAL ( INDIA)
Phone – 0755 – 2725477 / 4034733
WEB: icmbpl.com
Facebook: icmbhopal
E-mail: icmpbl@gmail.com
2

3. Introduction
•Cash is one of the current asset of business
•Any business organisation need it all the time.
•A business organisation need to keep sufficient cash.
3

4. •Any shortage of cash will hamper the business operation
•on other hand excess of cash is also not going to help
•.
4

5. Cash Management
•business organisation desires to utilise available cash in most effective way
•But management of cash is not as simple
•It is challenging to decide how much cash is needed for day to day operation and how much cash should be put aside to meeting any exigency.
•
5

6. •objective of cash management is to maintain sound cash position to maintain liquidity and use excess cash in profitable way.
6

7. Cash Management and Entrepreneurial Skill
•cash management is science
•A person need entrepreneurial skill to bring out good performance cash management like searching and arranging financial source, cash planning, cash budgeting, etc
7

8. Problem of Cash Management
•Problem in cash management has been identified in these four areas:
1. Controlling Level of Cash
2. Controlling in-flow of cash
3. Controlling out-flow of cash
4. Optimal investment of excess cash
8

9. •1. Controlling Level of Cash
•Every organisation try to keep minimum level of cash balance
•For deciding minimum level of cash the following things are taken into consideration:
9

10. •A. Predictable Discrepancies
Some discrepancies in business organisations are predictable
comes from discrepancy between in-flow and out-flow of cash.
10

11. B. Unpredictable discrepancy:
Labour strike, sudden rise in cost of input material, market recession
11

12. Such incidence may affect sudden in-flow of cash or out-flow of cash
.
12

13. C Source of Fund
Cash level depends on source of funds also from which companies obtain cash at short notice.
credibility of company becomes important.
13

14. D. Relationship with bank:
Level of cash also depends on the relation of company with bank.
Relationship with bank depends much on the credibility of company
14

15. •this connection other major important points are financial condition of bank, its location, managerial ability of its chief officer .
• financial products like cash credit management, collection of bills, discounting of bills etc. that it sells to company
15

16. •2. Controlling of In-flow of cash:
Adequate control on cash in-flow is also problematic area
. It is concerned with speedy collection of cash and also with preventing fraudulent diversion of cash in-flow.
16

17. •Fraudulent diversion of cash can be stopped by installing internal check system.
•Cash receipt activities are break down in several stages ….. each stage job is assigned to different employees.
17

18. •For speedy Collection
•Lock- Box System:
•This system of collection of in-flow cash is very popular in USA.
•company open deposit accounts in several banks are different geographical locations.
18

19. •Lock box in post office serves as regional bank for company.
•Customers sends their remittance to the lock box.
•The bank collect cheques from lock box several time in a day and clear the cheque and deposit the amount in the account of customer
19

20. •Collection through regional branch offices:
•In case company work thought regional branch offices at different geographical location, then this system is very effective.
•officer of regional branch office is authorised to collect in-flow cash on behalf of head office
20

21. •After collecting the cheque, officer deposit it to local bank which inter alia transfer the fund to the bank of head office.
•
21

22. •3. Controlling Out-flow of cash:
•
•In order to control out flow of cash, most company follow centralised cash payment system
22

23. •all payments from regional branch office is transferred to head office and head office in turn pay the bills directly to the parties.
23

24. •4. Optimal Investment of Excess cash
• The proper investment of excess cash in company at short notice is also a problem area.
•Finance manager use its prudence and discretion for investment of excess cash.
24

25. Cash Planning and Cash Control
•In order to maintain flow of cash, cash planning is done.
•well in time to maintain adequate cash balance in hand to meet present expenditure and unforeseen contingency
25

26. •Tools for cash Planning
•A. Net cash forecast:
•B. Cash Budget:
•C. Forecasting of overall working capital management
•A. Net cash forecast:
•It means forecast of cash inflow and cash out flow over a period of time.
26

27. Cash Control
•Planning and control are twin function of management.
•Formulation of cash management policy, procedure and practice
•
27

28. •Tools for cash Control:
•
A.Cash budget report:
B. Cash Flow statement
C. Ration Analysis:
28

29. Cash Budget
•It is systematic analysis of “ requirement of cash” over a period of time. It is prepared with help of cash inflow and cash out flow statement.
•Cash budget may be short term cash budget and long term cash budget.
29

30. Importance of Cash Budget
•1. Evaluation of Performance: Cash budget acts as a standard for evaluating financial performance by comparing the actual performance with the budgeted figure.
•If deviation is positive then it is said that performance is good.
30

31. •2. Sound Dividend Policy: Cash budget plan for cash dividend to shareholders in consistent with liquid cash position.
•3. Help in planning: Cash budget indicate either cash surplus or cash deficiency. Accordingly planning is done.
31

32. •4. Controlling Cash Expenditure: Cash budget controls expenditure of various department as they are not allowed to exceed the limit set in budget.
32

33. •5. Testing Influence of Proposed Expansion plan
• Cash budget forecast the inflow of cash from the investment plan and testify its impact on the cash
33