Main Objectives of Cash Management

ronak.rai

Par 100 posts (V.I.P)
Cash management is a broad term that refers to the collection, concentration, and disbursement of cash. It encompasses a company's level of liquidity, its management of cash balance, and its short-term investment strategies. In some ways, managing cash flow is the most important job of business managers. If at any time a company fails to pay an obligation when it is due because of the lack of cash, the company is insolvent. Insolvency is the primary reason firms go bankrupt. Obviously, the prospect of such a dire consequence should compel companies to manage their cash with care. Moreover, efficient cash management means more than just preventing bankruptcy. It improves the profitability and reduces the risk to which the firm is exposed.

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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 relation’s with suppliers.

(2) To minimise Cash Balance:-
The second objective of cash management is to minimise 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 maintain.
 
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Himanshi Agarwal

Well-known member
Importance of cash management
Just like a ‘no cash situation’ in our day to day lives can be a nightmare, for a business it can be devastating. Especially for small businesses, it can lead to a point of no return. It affects the credibility of the business and can lead to them shutting down. Hence, the most important task for business managers is to manage cash.

Management needs to ensure that there is adequate cash to meet the current obligations while making sure that there are no idle funds. This is very important as businesses depend on the recovery of receivables. If a debt turns bad (irrecoverable debt) it can jeopardize the cash flow. Therefore, cash management is also about being cautious and making enough provision for contingencies like bad debts, economic slowdown, etc.
 
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