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CASH MANAGEMENT

Motives for holding cash by British economist John Maynard

Keynes are:

1. The transaction motive : cash balances held are for the

purpose of meeting cash need in term of the ordinary course
of doing business. Ex. buying inventories, pay bills etc.

2. The precautionary motive : Cash balances act as a buffer
for unexpected needs that may arise.

3. The speculative motive : Cash balances are held for

potential profit-making situations such as bargain purchase
opportunities that might arise and attractive interest rates.

Cash planning - Cash budget to forecast cash inflow and

outflow. Also referred to as cash budget.

Management of cash receipts and payments

- Float Refers to funds that have been paid for, but are as

yet not useable. 3 components – mail, processing and
clearing float

Mail – length of time between the mailing of payments
and its receipt

Processing – time between receiving of a payment and its

deposits into the firm’s account

Clearing float – time between the deposit of payment

into the firm’s account and when the fund can be used (time
for cheque to clear)