Download Complete Main objectives of cash management
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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.
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(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.