CASH MANAGEMENT IN PRACTICE-1

Concentration banking is the most popular technique employed by business firms to intensify cash inflows. Usually the local sales office or branch of the company performs this function. Many of the firms which adopt concentration banking technique issue standing instructions to local banks that all funds above a certain limit be transferred to the centralized bank account of the company which is generally at the head office/registered office on the company. The management at the heal office utilized these funds on the basis of daily collection reports.

 

As regards the control of cash outflows, firms have a tendency to defer payment till the last moment. Funds are arranged only on the day cheques are expected to be presented by the payee and or the amount necessary to honor the cheques.  In the case of local payments, cheques are many a time handed over after the banking hours.

 

A wide variation in practice regarding the maintenance of minimum cash balance is observed. Some firms manage their cash needs within the predetermined limits of bank overdraft; some keep a minimum bank balance to need contingencies; some determine cash levels based on the information about daily cash requirements of all sections or divisions or units of the organization; some maintain cash balance of one month’s salary bills plus an amount to meet contingencies; and so on.