Basic objectives of cash management, Financial Management

Q. Basic objectives of cash management?

The basic objectives of cash management are two-fold:

1) To meet the cash disbursement needs (payment schedule); and 2) To minimize funds committed to cash balances.

These are conflicting and mutually contradictory and the task of cash management is to reconcile them.

1) Meeting the Payment Schedule: In the normal course of business firms have to make payments of cash on a continuous and regular basis to suppliers of goods, employees and so on. At the same time, there is a constant inflow of cash through collections from debtors. A basic objective of cash management is to meet the payment schedule, Le, to have sufficient cash to meet the cash disbursement needs of Chi firm. The importance of sufficient cash to meet the payment schedule can hardly be over-emphasized. The advantages of adequate cash are:

i) It prevents insolvency or bankruptcy arising out of the inability of a firm to meet its obligations

ii) The relationship with the bank is not strained;

iii) It helps in fostering good relations with trade creditors and suppliers of raw materials, as prompt payment may help their own cash management;

iv) A trade discount can be availed of if payment is made within the due date;

v) It leads to a strong credit rating which enables the firm to purchase goods on favorable terms. and to maintain its line of credit with banks and other resources of credit;

vi) To take advantage of favorable business opportunities that may be available periodically;

Posted Date: 6/20/2013 3:21:53 AM | Location : United States







Related Discussions:- Basic objectives of cash management, Assignment Help, Ask Question on Basic objectives of cash management, Get Answer, Expert's Help, Basic objectives of cash management Discussions

Write discussion on Basic objectives of cash management
Your posts are moderated
Related Questions
Q. Objectives of working capital management? The objectives of working capital management are habitually stated to be profitability and liquidity. These objectives are habitual

Illustrate the capital markets in maturity of the securities? On the basis of the maturity of the securities traded, capital markets can be introduced here: Capital markets


Yanni and Joanna need some investment advice. Joanna has sold $660,000 worth of Woolworths Limited (WOW) shares that she inherited late last financial year. She has $616,000 remain

Cost-Volume-Profit Analysis The Cost-Volume-Profit (CVP) analysis provides answers to vital questions such as: At what sales volume would the firm break-even? How sensitive is

WAYS AND MEANS ADVANCES (WMAs) WMA is not a permanent source of financing government deficit. But, this is likely to provide greater autonomy to the RBI in conducting monetary

What are some of the primary advantages when a corporation has operations in countries other than its home country?  What are some of the risks? Foreign operations may decrease a

Entity A is significantly smaller than B in terms of revenue and would not impact LOP's revenue to the same extent. However A earns a noticeably better gross profit margin at 26% a

The price charged when one segment of an organization provides goods or services to another segment of the organization.

The net income of Novis Corporation is $45,000.  The company has 20,000 outstanding shares and a 100 percent payout policy.  The expected value of the firm one year from now is $1,