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CASH MANAGEMENT

Methods to speed up collection and slow down

payments:

1. Reducing collection time – this will reduce customer float time which
will shortened the average collection period and cash conversion
cycle.

2. Increasing payment time – delay payment to supplier, must be use
carefully as longer payments period may cause a strain in
relationship with supplier.

3. Concentration of cash – transfer mechanism selected/choose by the
firm to concentrate deposits into one bank.

4. Zero-balance account – allows a firm to keep all of its operating
cash in an interest earning account. It allows the firm to maximize the
use of float on each cheque without altering the float time of
payment to its suppliers.

The Efficient Management of Cash

Since the objective of a company is to run the business effectively
without running out of cash, a company must keep the minimum cash
balance. By keeping the minimum cash balance, it will allow the
company to invest in various alternatives and to repay debts when
they are due.

Therefore the efficient cash management requires the following
steps:

1. Determine minimum operating Cash (MOC)

Most companies need to have minimum cash balance in operate their
business. This amount of cash is called Minimum Operating Cash
(MOC). MOC balances and safety stock of cash are influenced by the
firm’s production and sales techniques and also by its procedures for
collecting sales receipts and payment on purchase. In other hand, cash
balance are influence by the firm’s operating cycle and cash cycle. If
a company can manage these cycles efficiently, then the financial
manager of that company can maintain a minimum level of cash
investment and contribute toward maximization of share value.