CASH

MANAGEMENT
CASH MANAGEMENT
-it includes the amount a
firm holds in its checking
account as well as the
amount of actual currency
it has.
Firms hold cash for following reasons:
Payment must be made in cash and receipts are
deposited in a cash account.
Transactions Balance – a cash balance for day to day 01
operations, the balance associated w/ routine payment &
collections.

Bank often requires a firm to

02 maintain a compensating balance on
deposit
Because cash inflows and outflows 03
are somewhat unpredictable.

Cash balances are held to enable the

04 firm to take advantage of bargain
purchases that might a rise.
 CASH
MANAGEMENT
TECHNIQUES
FLOAT
CASH FLOW
SYNCHRONIZATION The difference
CASH FORECAST between the balance
A firm needs to A situation in which shown in the
predict the timing cash inflows coincide firm’s(individual’s)
of its cash inflows with cash outflows, Check book and the
and cash outflows thereby permitting a balance shown on
to plan for its firm to hold low the banks record
investment & transactions balances.
borrowing activities.
 The value of the checks that have been
written and disbursed but have not yet fully
DISBURSEMENT cleared through the banking system and
FLOAT thus have not been deducted from the
account on which they were written.

The amount of checks that have

COLLECTION been received and deposit but
FLOAT FLOAT have not yet been credited to the
account in which they were
deposited.
NET
The difference between disbursement float and
FLOAT
collection float; the diff. between the balance
shown in the firm’s(individual’s checkbook and
the balance shown on the banks book.
ACCELERATION OF RECEIPTS

A firm cannot use customer’s payment until

they are received and converted into a
spendable form, such as cash or an
increased in a checking account balance.
 LOCKBOX
A technique used to reduce float by having
ARRANGEMENT payments sent to post office boxes located
near the customer.

A system that allows a customer’s bank to

PREAUTHORIZED
DEBIT SYSTEM
periodically transfer funds from its account to a
selling firm’s bank account for the payment
of bills.

A cash management technique in which

CONCENTRATION funds from many bank accounts are
BANK moved to a more central cash pool so as
to more efficiently manage cash.
 DISBURSEMENT CONTROL
Centralizing the processing of accounts payable permits the financial
manager to evaluate the payments coming due for the entire firm.

ZERO-BALANCE ACCOUNT(ZBA)
1
A special checking account used for disbursements that
has a balance equal to zero when no disbursement activity
occurs.
2
CONTROLLED DISBURSEMENT ACCOUNT (CDA)
A checking account in which funds are not deposited until checks are
presented for payment, usually on a daily basis. 3
Thank you