02. Cash Management

02. Cash Management - 9/22/2010 Merits & Demerits of...

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9/22/2010 1 MERITS & DEMERITS OF HOLDING Managing Cash CASH NEED FOR HOLDING CASH CASH MANAGEMENT TECHNIQUES THE CASH BUDGET Merits & Demerits of Holding Cash y Meet various payment requirements of the firm, e.g., Ù suppliers, Ù wages and salaries to the work force, Ù payment for repair & maintenance Ù and so forth. y Holding Idle cash has an opportunity cost. Need for Holding Cash y Transactional: y Compensating: y Precautionary: y Speculative: Cash Management Principles y Collect as quickly as possible to facilitate reinvestment. { Do not force premature collection. y Disburse as slowly as possible to ensure longer internal use. { Do not delay payment beyond the deadline. Cash Management Techniques y Cash flow Synchronisation y Cheque Clearing Process y Floats y Acceleration of Receipts. y Disbursement Control Cash Flow Synchronisation y Improve forecasts of cash receipts and disbursements y Be able to make cash inflows coincide with cash outflows thereby reducing { transactional balance, { decreasing bank loans, { lowering interest expenses and boosting profits.
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9/22/2010 2 Cheque Clearing Process y Expedite the process of cheque clearing. { The clearinghouses. { Cheque clearance time is a function Ù of the distance between payer’s and payee’s banks Ù possible mail delays.
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This note was uploaded on 04/23/2011 for the course FIN 427 taught by Professor Mahmudulhaque during the Spring '11 term at BRAC University.

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02. Cash Management - 9/22/2010 Merits & Demerits of...

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