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Objectives Of Cash Management

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Introduction

Investopedia explains cash management as the corporate process of collecting, managing and investing (short term) cash. It is a key component of ensuring a company's financial stability and solvency. Successful cash management involves not just avoiding insolvency or bankruptcy, but also reducing days in account receivables, increasing the collection rates, selecting appropriate short-term investment methods, and increasing the days of cash on hand, in order to improve a company's overall financial profitability.

Objectives of Cash Management
Cash plays an important role in a company’s operation. It is used to pay wages and salaries, trade debts, taxes and dividends. It not only enables the company to readily pay its creditors …show more content…

• Precautionary Motive - Unanticipated cash demands require an additional amount to be kept to be able to meet such unexpected demands. It can vary from unexpected rise in the prices of raw materials, debtors delaying their payment further than expected, strikes, etc.
• Speculative Motive - Speculative balances are kept in order to allow the business to take advantages of any opportunities which may present themselves at unexpected times. Suppliers sometimes may try to attract these companies by giving special discounts, but the company has to pay in cash.

Thus, the objectives of cash management are two-fold: (i) To have sufficient cash for operation in order to maintain liquidity; and (ii) To invest excess cash for a return.

What is a Cash Budget?
A cash budget is a statement showing the estimated cash inflows and outflows over the planning horizon. Companies can prepare a cash budget on a quarterly, monthly, weekly or even on a daily basis. The ultimate purpose is to identify the net cash position of the company in the future, that is, whether there is any cash surplus or cash …show more content…

One of the simplest techniques of this objective of cash management is expense tracking. This technique helps a business owner to monitor all the out flowing money. This usually applies during paying off loans, buying extra supply materials, and distributing the employees’ salaries. After all the expenses have been subtracted from the business’s gross income, the remaining amount is usually said to be the net income. Recording every penny that goes out will help the business determine its real profits, set aside finances for regular expenses, and save up on unnecessary costs.
Besides the expense tracking, cash management techniques should also concentrate on tracking all the accounts receivable. The accounts receivable refers to all the money coming into the business that can arise from sales or returned investments. In some cases, customers and employees can even contribute to the money when they pay for the amount they owed. The database should also note down the exact dates, such as when the money is being borrowed and deadlines for

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