CASH MANAGEMENT IN PRACTICE

We now present some evidence with regard to cash management practices. This is based on few studies that been carried out in the Indian context.

 

The evidence suggest that the practices of cash inflows and outflows predictions remain much to be desired, The ‘gut feeling’ approach to cash flow forecasting is very much in vogue in Indian corporate sector; a few firms make use of quantitative forecasting models (including simulation technique). The sales price, production quantity, raw material cost, power and fuel costs, and credit collection are usually considered as critical variables fro cash flow forecasting. The most frequently cited causes of forecast errors are government control and regulations, internal management decision and the external causes like the change product demand, competitive pressure, actions of suppliers, etc.

Firms usually operate on the basis of cash budgets and most of them prepare cash flow statements separately for capital and revenue operations. Firms also prepare regular cash reports. Some prepare daily cash reports; others prepare it every month. Some of the firms prepare cash reports at more than one point of time, namely, daily as well as weekly and monthly. Utilizes these funds on the basis of daily collection reports