CASH MANAGEMENT PURPOSE AND TECHNIQUES

MAIN PURPOSE OF CASH MANAGEMENT ACCORDING TO COMPANY

1     1- Collections

2-    Payments

MANAGING CASH COLLECTION AND DISBURSEMENTS and TECHNIQUES

1-      Accelerating cash collections/ cash inflows

2-      Slowing down the cash outflows  

3-      Controlling disbursement

ACCELERATING CASH COLLECTION

1-      Decentralized collections

2-      Prompt payments by the customer

PROMPT PAYEMENTS BY THE CUSTOMER

In order to accelerate cash inflows the collection of the payments from the customer should be prompt and it is possible by prompt revising or invoices. Quick conversation into cash can also help. Cash flow can be accelerate by improving cash collection process and effective cash collection management. It can be possible if the time taken in deposit float (Cash float refers to the difference between the cash balance recorded in your accounting system's cash account and the amount of cash showing in your company's bank account balances.)  is reduced. This can be done by decentralization of the collection process

DECENTRALIZED COLLECTIONS

The big firm or operating a wide range of area can accelerate cash collection by using the method of decentralized. It can be done by opening number of collections centers in different areas instead of collecting receipts at any point

TYPES OF DECENTRALIZATION

1-      Centralized bank

2-      Lock box

LOCK BOX SYSTEM

Collection centers are established considering the customer location and volume of remittance. At each center the firm hires a post offices box. Remittance is directly picked from the bank whom the firm give the authority.

ADVANTAGE

1-      Check are deposit immediately upon receipts of remittance

2-      Eliminate the period between the time check are received

 CONTROLLING DISBURSEMENT

It means delay in the payments as much as possible can help the firm in conserving cash and reducing the financial requirements

SLOW DOWN CASH MANAGEMENT

1-      Paying on last date

2-      Adjusting payroll bill

3-      Centralization payments

4-      Bottom line

PAYING ON LAST DATE

 In this way disbursement can be delayed on the last due date only and payments through the draft and firms can delayed by issuing on draft to supplier instead of check

When a check issued the balance must be kept in a bank account. Bank will pay when they have money in the bank account. While the draft can be issued and it is payable only issue when is physically present in the bank.

ADJUSTING PAYROLL BILL

The company can also use the method of adjusting the payroll funds and it can be done by frequently reducing payments. You will have to reduce the frequently payments for example: if the payments are made easily for the adjusted payments per month. The periods can be extended to 10 months.

CENTRALIZATION OF PAYMENTS

Centralization of payments means a company can go for centralization of payments. That is the payments should be centralized and made through draft or check.

BOTTOM LINE

The firm maybe used these types of methods to maintain optimum cash flow in an organization