Introduction And Meaning Of Cash Management
Cash management refers to collecting, managing, handling, and controlling of cash in the business firm. It aims to manage cash outflow (account payable) and cash inflow (account receivable) to ensure optimum utilization of financial resources. An effective cash management system helps to maximize liquidity and profitability of the firm.
Importance Of Cash Management
The main importance of cash management can be summarized as follows:
1. Matching Cashflows
Good cash management system aims to match cash outflows and cash inflows in the company. It helps to minimize cash related problems and maintains proper liquidity in the business.
2. To Meet Financial Obligations
Cash management ensures sufficient amount of cash which helps the company to meet its short-term or long-term financial obligations.
3. Investment Opportunity
The main objective of cash management is maximum utilization of fund. So, it encourages to invest unused, idle or surplus fund in profitable projects.
4. Sufficient Working Capital
It ensures adequate amount of working capital in the workplace which facilitates smooth functioning of organizational activities without any shortage of fund.
5. Better Inventory Control
It helps to maintain optimum level of inventory by avoiding over or under stocking of materials that helps to maintain positive cash flow in the company.
Also Read
Importance Of Working Capital Management
Importance Of Inventory Management
Importance Of Receivable Management
6. Advantage Of Discount
Company with sufficient cash in hand can enjoy the benefit of bulk buying and also can take the advantage of cash discount in special purchase. It helps to minimize the cost of the product and maximize the profit of the firm.
7. Grown And Expansion
Company can use surplus cash for growth and expansion purpose. So, good cash management helps to expand business.
