Objectives of Cash Management
Cash management means optimal cash maintain in a business. If an excess is taken in a business, it is harmful because it does not grow profit. Contrary if the cash is taken deficit position them the liquidity crises exists. It is a key component of a company’s financial stability and solvency.
In order to ensure you meet the objectives of an effective cash management policy, the financial manager must ensure that the company meet the payment schedule and also minimize idle funds committed to cash balances.
(a) To make payment: firm needs cash to meets its routine expenses including wages, salary, taxes etc. Following are the main advantages of adequate cash…
- To prevent a firm from being insolvent.
- The relation of the firm with the bank does not deteriorate.
- Contingencies can be met easily.
- It helps the firm to maintain good relationships with suppliers.
(b) To minimize cash balance: the second objective of cash management is to minimize cash balance.
(c) Meeting cash balances: the financial manager must ensure he has enough cash in hand to pay suppliers, creditors, employees, shareholders, banks etc. Most financial managers at times go a step further and keep even more than required. This can be the result of various factors such as –
- Enhancing the company reputation – settling payments on time keeps creditors and suppliers happy.
- Taking advantage of trade discounts by paying your debts on time.
- Stronger negotiating power when dealing with suppliers.
- Unexpected cash requirements can be met with no problem at all.
These are the objectives of cash management.