16 Cash Management 1 Optimal cash conversion cycle 2 Cash conversion policies 3

16 cash management 1 optimal cash conversion cycle 2

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16Cash Management1.Optimal cash conversion cycle2.Cash conversion policies3.Purchase and sales control
Cash management is a financial discipline that uses the same principles regardless the type ofbusiness, size or age of an enterprise. Cash management is not an accounting function. Theaccountant records and reports transactions historically; the cash managers use techniques,products and services to efficiently manage cash resources and satisfactorily resolve cashshortages or surpluses. Atrill 2006 suggested that there is need for careful planning andmonitoring cash flows over time. Nyabwanga, Ojera, Lumumba, Odondo and Otieno (2012) assessed the effect of WCM practiceson the financial performance of SMEs in Kisii south district. A sample of 113 SMEs comprising72 trading and 41 manufacturing enterprises was used. Pearson’s coefficient and multipleregression analysis techniques were used to analyze data. Consequently, the findings of the studywere that, WCM practices were low amongst SMEs as majority had not adopted formal workingcapital management routine on their financial performance was positively related to efficiency ofcash management, efficiency of receivable management and efficiency of inventorymanagement. According to Van Home (2000), a firm with excess amount of current assets may face low returnon investment because of the cash being held up. On the other hand, those with low currentassets may incur shortages and experience challenges in operations. It is on this paradigm that itis recommended for firms to maintain optimum level of liquidity. Hamza, Mutula and Antwi(2015) highlights that an institution should be in a position to generate sufficient cash to sustainits immediate obligations, to be able to trade. Cash management is considered among the mainaspects that determine the efficiency of WC, this involves planning and controlling of all cashflows from and into the business (Weston and Copeland, 2008).Many small enterprises lack data on the estimated future cash inflows and they also never budgetor plan for the expected funds. This directly impacts on the future survival and sustainability ofthe enterprise. According to Nick (2009) findings it was revealed that enterprises which regularlybudget for the future once a month increase their chance of survival up to 80%. He also pointsout that small businesses assume that cash flow problems are automatically solved by increasedgrowth in the future. Mong (2011) established that few small enterprises create cash budgetsdespite the importance of cash forecasting as a tool for efficient cash management.2.4.2 Inventory Management 17
Inventory consists of firm’s raw materials, work in progress and finished goods. Inventory is oneof the major components of WCM is a crucial concern for firms because of the large investmentinvolved. Firms strive to maintain optimal inventory levels to avoid potential major losses inasset values and increase firm profitability (Simchi et al., 2014). The smaller levels of inventory

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