qwertyuiopasdfghjklzxcvbnmqwertyui

opasdfghjklzxcvbnmqwertyuiopasdfgh
jklzxcvbnmqwertyuiopasdfghjklzxcvb
nmqwertyuiopasdfghjklzxcvbnmqwer
tyuiopasdfghjklzxcvbnmqwertyuiopas
CASH MANAGEMENT
dfghjklzxcvbnmqwertyuiopasdfghjklzx
SUB BY: MARICRIS J. PASCUA

cvbnmqwertyuiopasdfghjklzxcvbnmq
FINMAN 3A

SUB TO: MRS.ZENEDITH MONANG

wertyuiopasdfghjklzxcvbnmqwertyuio
pasdfghjklzxcvbnmqwertyuiopasdfghj
klzxcvbnmqwertyuiopasdfghjklzxcvbn
mqwertyuiopasdfghjklzxcvbnmqwerty
uiopasdfghjklzxcvbnmqwertyuiopasdf
ghjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmqwertyuiopasdfghjklzxcvbnmrty
uiopasdfghjklzxcvbnmqwertyuiopasdf
ghjklzxcvbnmqwertyuiopasdfghjklzxc
What is 'Cash Management?'

Cash management is the corporate process of collecting and managing cash, as well as using it

for (short-term) investing. It is a key component of ensuring a company's financial stability

and solvency. Corporate treasurers or business managers are frequently responsible for overall

cash management and the related responsibilities to remain solvent.

In the real world, organizations have strict cash management controls to monitor its inflows and

outflows while retaining a sufficient amount in order to take advantage of attractive investments

or handle unforeseen liabilities. Efficient management of cash prevents loss of money due to

theft or error in processing transactions. Numerous best practices are adopted to enhance

management of company’s funds.

This involves shortening of cash collection periods, regular follow ups for collections,

negotiation of favorable terms with suppliers allowing delay in payment periods, and preparation

of cash flow forecasts. Businesses also use of technology to speed up cash collection process.

They must do all of this while maintaining adequate amount of funds to meet daily operations.

Let’s take a look at an example.

Example

A computer manufacturing company, Techno Ltd., uses supplier Beta & Co. to purchase its core

materials. Beta & Co. has the policy of allowing its customers who buy on credit to pay within

30-days period.
At the moment Techno Ltd. has $20 million cash resources available and has to pay $5 million to

Beta & Co. after 30-day period for the purchases. However, after 30-day period Techno Ltd. has

an investment opportunity requiring use of the full $20 million cash resources.

If the company is able to renegotiate its terms with suppliers allowing 60-day period, the delay in

payment will allow the company to benefit by using current funds for the investment and paying

suppliers with cash generated next month from other projects. Thus, by properly managing its

funds, Techno can take advantage of investment opportunities while maintaining its operations.

Objective of cash management

1) To make Payment According to Payment Schedule:-

Firm needs cash to meet its routine expenses including wages, salary, taxes etc.

Following are main advantages of adequate cash-

a)To prevent firm from being insolvent.

b)The relation of firm with bank does not deteriorate.

c) Contingencies can be met easily.

D) It helps firm to maintain good relations with suppliers.

(2) To minimize Cash Balance:-

The second objective of cash management is to minimize cash balance. Excessive amount of

cash balance helps in quicker payments, but excessive cash may remain unused & reduces
profitability of business. Contrarily, when cash available with firm is less, firm is unable to pay

its liabilities in time. Therefore optimum level of cash should be maintained.

Functions of Cash Management

Cash management is the treasury function of a business, responsible for achieving optimal

efficiency in two key areas: receivables, which is cash coming in, and payables, which is cash

going out.

Cash is a volatile section of financial reporting; it is link to virtually every account in the

financial statements. It cuts across every element of financial statements vis-avis assets,

liabilities, equity, income, and expenses. The earth is globular and moves in a cycle; life is as

well a cycle. Cash is life and a cycle of activities. Cash management is essential to perform

finance roles such as business and financial strategy, financial stewardship, risk management,

value creation, cost control, management of operating model, budgetary control and performance

management, negotiation, and decision support among others. Cash management is closely

interlocked with other key management processes. Quality data is the means of support of cash

management. Cash management system with inadequate capacity can leave organisation out in

the open to dawdling, scrappy process, doubtful data and deficient audit trail for decision-making

and stewardship. According to a US bank study, 82 percentages of business failures are due to

poor cash management. Cash is required to meet vital purposes of transaction, precaution, and

speculation. Organisation should be able to pay for required goods/services as the need arise to

meet transactionary purpose, make provision for unforeseen circumstances that could arise to be
precautious, and be able to take advantage of unanticipated opportunities and speculations (like

investment) as they arise to increase shareholders’ wealth. Cash is paramount aver of wealth;

deferred consumption save cash for precaution reasons, or speculated investment to create assets

for future consumption. Missed opportunities because of poor cash management are always too

high that the organization may not have it again. Cash to every organization is like blood to

every man; cash is ultimate and is the liquid asset ever. Effective and efficient management of

cash is essential for the survival and growth of organization. Good cash management can reduce

the finance cost of the organization and reduce expenses in general because of timely allocation

base on precedence items. Cash management is the good and adequate utilization of liquid funds

(cash and cash equivalents) that are at the exclusive disposal and use of an organization for

optimal utilization, survival, and profitability. Survival of enterprise relies heavily on cash

management; cash management in contemporary world is no longer intuitive, poor cash

management can lead to collapse of enterprise. Cash is the best survival tool. Liquid funds can be

cash in hand, cash at bank (savings, current and domiciliary accounts), deposits (fixed, time, etc),

and so forth. The collapse of many great enterprises like W. T. Grant and Chrysler would have

been averted if serious attention were paid to cash management. Good cash management allows

enterprise to utilize most of cash that would have been idle or susceptible to theft and as well

assist the management in anticipation of cashless situation. Shareholders’ primacy is important;

rather than allow payables and receivable keep cash longer, good cash management system will

give the cash back to shareholders. In any case, strong cash flow is an indication of generating

real value for the owners. It was recently stated by Citigroup that stock price performance of

more liquid companies is 27% higher than their less liquid counterparts. Cash management cut

across financial management, management accounting, internal control and auditing, financial
accounting and financial reporting. Cash management can be done with the aid of several tools

that are intertwined, such that one is a control or confirmation of another. Good cash

management can be carried out with the use of cash positioning report, cash flows statement,

bank reconciliation, cash reconciliation, and cashbooks. However, apt cash management utilize

cash forecast, credit control and management, cash flows report and cash budget alongside. Cash

management is a complex and evolving topic. It can be described as services rendered by banks

to customers. History has it that banks did cash management free of charge as a value added,

competitive edge to their customers before the current empowerment of cash management with

seamless unprecedented automation and control. In the current develop veracity; banks now

make income from providing plethora of sophisticated cash management services to their

customers who are mostly big and multinational enterprises with the aid of information

technology consolidation, workflow efficiencies and better straight-through processing. Banks

provide treasury and liquidity management services such as account reconcilement, disbursement

control, cash concentration, zero balance accounting, advance web services, balance reporting,

cash collection, cash transportation (armored car), cash concentration, wire transfer, automated

clearing house facilities, and other services.

Efficient cash management

Efficient cash management is the reduction of the cash cycle as short as possible such that cash

can go fast through the cycle of activities. This drastically reduces financing cost such as lost

opportunities due to lack of fund, interest costs and make cash yield returns by cash sweep to

investments of cash in opportunities and fixed deposits, which yield far less than the former and

most definitely below cost of capital. Opportunities could be inorganic like investments in (real)

estate, merger and acquisition, properties and or idle capacities that are gold decoy with filth and
looking for insightful investors that can polish and dispose them of within a short period and

appetite-wetting premium. Real investment is by far higher returns yielder and good for national

economic development, but it is very risky: long term, unpredictable and ties-up cash. A good

knowledge of risk management and investment planning and appraisal is a strong mitigating

factor, so a specialist can be assigned full-time to ensure accurate investment decisions. There

was an industry experience of a company with a foresighted finance leader that took advantage

of inorganic investment by tying up cash on estate; the company survived long on the huge

reserve created while competitors’ heads were deep below the sea when meltdown hit the

industry. This example is a guide, there are numerous of such opportunities in hazy forms. Cash

efficiency does not come in naturally. It is a result of forecasting and planning, working capital

cycle management, good internal control system, best utilization of cash comparative analysis of

competitors models, enterprise approach to cash management (i.e. ensuring payment is made

from receipt), strategic management of top-line, transformational cash management strategy,

among others. The primary responsibility of treasury is to safeguard and ensure best utilization

of cash. Safeguard comes in strongly because you can only manage what you have. Cash

management efficiency shows in sustainable cash flows and perhaps free cash flows, which

reflect succinctly at the level of free cash flows. The three drivers of cash: debtors, creditors, and

inventory should be managed to enhance cash efficiency. Efficient cash management prepares

organization for problems, as well as breaks. Growth such as merger and acquisition, new

product development and increase sales ingratiate cash. In practice, enterprise may struggle to

pay even essential bills in the period it expands; good cash management is watchful of this

paradox by the exploit of cash projection in conjunction with other tools to control the situation.

The finance unit should make better and more economical cash management to better the
shareholders’ wealth; competitive advantage should be leveraged to create value over time. In an

experience, a CEO found new revenue for the company, that is finding it hard to survive and

required new revenue stream that cannot come from its old business, but the green finance chief

micromanaged and achieved closure of this because of consequential cash flow challenges on the

expansion. Cash management should go beyond the traditional approach, which sees cash

management as superfluous in the period of growth but a necessity to survive economic down-

turn. Enterprise needs to come to terms with utilizing cash management for business and

competitive analysis. Competitive analysis such as the Industry analysis (which certainly utilizes

Porter's Five Forces Model), Strategic group analysis, SWOT analysis, Value chain analysis, and

GE business screen matrix (a derivation of the BCG growth/share portfolio matrix). The

appropriate technique is determined by the nature of the pressing problems that are faced. Blind-

spot analysis, Competitor analysis, Customer segmentation analysis, Customer value analysis,

Functional capability and resource analysis, Management profiling, Macro environmental

(STEEP) analysis, Scenario analysis, Stakeholder analysis, Experience curve analysis, Growth

vector analysis, Patent analysis, Product life cycle analysis, Miller-Orr Model, S-curve

(Technology Life Cycle) analysis, Financial ratio and statement analysis, Strategic funds

programming, Sustainable growth rate analysis and several others could be utilized. BCG matrix

can assist on likely cash flows from a product/unit, blind-spots analysis identifies areas affecting

cash management to minimize cash flow problem, customer segmentation analysis could be

utilized to provide the best credit terms to the most valued customers, scenario analysis could

estimate cash flows to possible scenarios, as so forth.

Why is cash management important to any business?

Because it allows businesses to be solvent enough to keep the company in business even during
slow activity or economic downturns. If your business cannot meet its monthly obligations for
operations and liabilities you are not solvent. This means that a downturn in the economy or any
loss of sales could be devastating.
Businesses that have poor cash management can fall behind in debt and monthly operational
expenses, making it extremely hard to recoup stability. Sometimes when things are very rough
lack of cash flow can prevent the processing of payroll. Employees will not work if they do not
get paid. If your cash flow issues get to that point the business has little chance to recover.
Cash management benefits:
1. Allows adequate cash for purchases and other purposes.
2. Ability to meet cash flow.
3. Allows planning for capital expenditure.
4. Allows for financing at better terms.
5. Enables you to make special purchases and take advantage of business opportunities.
6. Facilitates invest.

Practicing good cash flow management

One of the first steps in cash flow management is measuring liquidity, this means having the
amount of cash on hand to meet current financial obligations. Then, you need to develop a cash
flow projection. This allows you to manage cash on a daily basis as well as long term. And
utilize cash management planning for short and long term goals. Using historical cash flow
statements helps keep track of how money was used.
Keeping track of how cash was used in the past and knowing your current liquidity, will allow
you to make long strides in managing cash flow. Knowing where your cash comes from and goes
to is vital to being able to manage your available cash.

Controlling cash
This is essential in managing cash flow both in the short and long term. Ensuring that
outstanding debts are managed cuts down on cash shortages. Making wise investment decisions
allows cash to be available when it is needed. If you tie up cash in long term stock it is not
available to invest in something short term with a good ROI. Also, ensuring that you pay your
payables on time keeps cash flow of suppliers moving, and prevents them from increasing your
prices of necessary items. By managing your cash flow properly you help to ensure that the
economy runs smoother for everyone.

Goals of good cash management for your business

The largest goal of good cash management systems is to reduce or eliminate any surprises when
meeting cash requirements. Good cash management influences the efficiency of operations and
reduces overall cost of doing business.

How Do I Practice Good Cash Flow Management?

Good cash management is simple. It involves:

 Knowing when, where, and how your cash needs will occur;

 Knowing the best sources for meeting additional cash needs; and

 Being prepared to meet these needs when they occur, by keeping good relationships with

bankers and other creditors.

The starting point for good cash flow management is developing a cash flow projection. Smart

business owners know how to develop both short-term (weekly, monthly) cash flow projections

to help them manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help

them develop the necessary capital strategy to meet their business needs. They also prepare and

use historical cash flow statements to understand how they used money in the past.
REFERENCES:

Cash Management https://www.investopedia.com/terms/c/cash-

management.asp#ixzz5D32oKLto

Cash Management https://www.investopedia.com/terms/c/cash-

management.asp#ixzz5D32wheva

http://www.managementparadise.com/forums/financial-management/227968-main-objectives-

cash-management.html

https://smallbusiness.findlaw.com/business-finances/the-importance-of-cash-

management.html

https://poseidon01.ssrn.com/delivery.php?ID=50008109011906506406911200311710800510

104504904601604207202406612209409312408700600502309612702005702204312209709011

601202308011406100805403808400008808406507008506901402308311809300602109410611

9087013021103009098076080001124127114090029123093103005096&EXT=pdf