What is cash Management? | How to manage cash?

Business need cash to make payments for acquisition of resources and services for normal conduct of business.  Cash is one of the important and key parts of the current assets.

Cash is the money which business concern can disburse immediately without any restriction. The term cash included coins, currency, cheques held by business and balance in its bank accounts.

Cash management techniques

Managing cash flow constitutes two important parts

Speedy cash collection

Slowing disbursement

Speedy cash collections

 Business must concentrate in the field of speedy cash collection from customers. For that, the concern prepares systematic plan and refined techniques. These techniques aim at, the customer who should be encourage to pay as quickly as possible and the payment from customer without delay. Speedy cash collection business concern applies some of the important techniques as follow:

Business concern should encourage customers to pay promptly with the help of offering discounts, special offer etc. it help to reduce the delaying payment of customers and the firm can delay from customers.

Business concern should take careful action regarding the quick conversion of the payment into cash.

Slowing disbursement

An effective cash management is not only in the part of speedy cash collection of its cash and receivables but also it should concentrate to slowing their disbursement of cash to the customer or supplier. Slowing disbursement of cash is not the meaning of delaying the payment of avoiding the payment.

Avoid the early payment of cash

The firm should pay its payable only on the last day of the payment. If the firm avoids early payments of cash, the firm can retain the cash with it and that can be used for other purpose.

Centralised disbursement system

Decentralised collection system will provide the speedy cash collection. Hence centralised disbursement of cash system take time for collection from our accounts as well as we can pay on date.

Cash management model

Cash management model analyse method which provide certain framework as to how the cash management is conducted in the firm. Cash management model are developed of the theoretical concept into analytical approaches with mathematical applications. There are three cash management models which are very popular in the field of finance.

Baumol Model

The basic objective of Baumol model is to determine the minimum cost amount of cash conversion and the lost opportunity cost.

It is a model that provides for cost efficient transactional balances and assumes that the demand for cash can be predicated with certainty and determines the optimal conversion size.

Miller Orr model

This model was suggested by Miller Orr. This model is to determine the optimum cash balance level which minimise the cost of management of cash.

Orgler’s Model

Orgaler model proves for integration for cash management with production and other aspects of business concern. Multiple linear programming is used to determine the optimal cash management.