Cash bank

CASH- BANKTEACHER:

Atty. Ma. RosafeAmelou V. Saril, CPA

GROUP 1

CASH

CASH

- Cash in a broader sense includes coins, currency notes, cheques , bank drafts and also marketable securities and time deposits with banks.

Cash is known as most liquid and less productive assets of a firm. If cash remains idle, earns nothing but involves cost in terms of interest payable to finance it. Although cash is least productive current assets, firm should hold certain amount of cash for marketable securities.

OBJECTIVES , REASONS AND MOTIVES FOR

HOLDING CASH

OBJECTIVES AND REASONS FOR HOLDING CASH

a) To meet payment needs of trading & business activities.

b) To minimize idle funds

c) To avoid cash crunch

d) To maintain liquidity

e) To make payments to creditors and suppliers on time.

MOTIVES FOR HOLDING CASH

1) Transaction Motive – for routine business/ operating payments

2) Precautionary Motive — to provide for unexpected/ unpredictable events like strike, flood, increase in raw material cost etc.

3) Speculative Motive — to take advantage of unexpected opportunities like favourable/ reduced prices of material , discount for bulk purchases etc.

4) Compensating Motive – Minimum balance is required to be maintained with the banks for various services provided by them.


Transactions Motive

Cash balances are kept in order to meet routine cash needs of the business, such as the purchase of raw materials, payment of employees’ wages, etc…

Precautionary Motive

Unanticipated cash demands require that an additional amount is kept to be able to meet such unexpected demands. Unanticipated cash demands can vary from unexpected rise in the prices of raw materials, debtors delaying their payment further than expected, strikes, etc…


Speculative Motive

Speculative balances are kept in order to allow the business to take advantages of any opportunities which may present themselves at unexpected times. Suppliers at times may try to attract companies by giving special discounts, but you must pay in cash.

OBJECTIVES OF CASH MANAGEMENT

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’s 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

OBJECTIVES OF CASH MANAGEMENT

Minimising idle balances

Too much cash tied up in idle balances waiting for something to happen involves an opportunity cost and hence loss of profits. As you minimise the cash balance, you increase the chance of a shortfall and of failing to meet your payments schedule.

CASH MANAGEMENT TECHNIQUES

Good cash management techniques are vital to the success of any business. In times of economic difficulty, it is even more important to ensure the inflow and outflow of money is carefully and cleverly managed. A variety of cash management techniques are offered by the banking industry for large and small businesses. These services will not only simplify cash management procedures for your business, but they will also help you safeguard your financial situation by preventing losses and maximizing the earning potential of every dollar.

Cash management is a set of strategies or techniques a company uses to collect, track and invest money. Although cash by definition refers only to paper or coin money, in cash management, companies usually also work with cash equivalents such as checks. This is becoming increasingly common as the money system becomes more abstract, using electronic methods



Budgeting

A budget is the cornerstone of any sound financial plan. Budgeting is simply the process of tracking your monthly expenses to determine how you're really spending your money. By making a list of monthly expenses you can discover areas where you can reduce or even eliminate spending and expenses. By preparing a budget, there's a good chance you will free up extra cash to use for other purposes, like investing.

Investing

Speaking of investing, there is no shortage of places where you can put that extra cash you uncovered by budgeting. An effective way to manage your investment dollars is to start a systematic program that allows you to invest with little pain and effort. If you have a 401(k) plan at work, for example, you can set it up so that money is automatically deducted from each paycheck and invested into the plan. You'll get used to the "missing" income and you'll be ensuring that you're saving for the future.


Credit

Credit can help you in times where you're a little short on cash or facing a financial emergency. Credit cards are probably the most common and easily accessible form of credit, but they must be used judiciously to avoid falling into debt. If you own a home, and have built up some equity, you can borrow against it in the form of an equity loan or line of credit to obtain needed cash at a relatively low interest rate.

Generating Income

Don't overlook the option of generating additional income as an effective cash management technique. There are many ways you can bring in more dollars, such as getting a second job, selling unwanted stuff on eBay or adjusting your tax withholding on your W-4 form to reduce the amount deducted from your paycheck. If you have a set of unique skills, you could put them to use by starting a small side business online or out of your home.


Physical Cash Management

Although the banking industry has gone almost fully electronic, there are a few services that computers can't replace.

If your business deals with large amounts of cash, a regular collection service by armored car is safer than sending an employee to the bank with a bag of bills.

For businesses that receive a lot of check payments by mail, a lockbox greatly reduces staff time spent processing them. Customers mail their payments to a PO box under your business's name. Bank staff collect, open and process the payments according to your requirements, and deposit the money directly to your account


Management of Cash Disbursement

Internet banking for businesses is generally quite flexible, allowing you to create profiles and access levels for different employees. It also allows you to instantly view account balances and transfer money between accounts.

The Automated Clearing House (ACH) is widely used by companies for paying employees. Employee bank account details and pay rates are registered with your bank, and salaries are automatically paid by direct deposit. It is also useful for businesses such as fitness centers, utility companies, or charities that receive regular payments or donations via direct debit.

If your business makes a lot of payments by check, or regularly writes checks for large amounts, controlled disbursement helps ensure your payments clear. The bank will send you a report early in the day advising you of any checks due to clear that day. You can then transfer the exact amount needed to your disbursement account. Your checks don't bounce, and you don't lose any interest earnings by having idle cash in the account.


Cash-Maximization Techniques

An important part of cash management is maximizing potential interest returns on your money. Naturally, the banking industry has more than one technique to help you achieve this.

A sweep account helps to maximize cash available for investment. When the account balance rises above a specified minimum, the bank automatically sweeps the funds into an investment account. If the account balance drops below the specified level, sufficient funds are automatically swept back.

Cash concentration is especially useful if your business has several locations, with separate bank accounts for each location. Your bank can arrange to regularly transfer funds from these disparate accounts into one central account. This allows you to use the money more efficiently -- for example, in investments or high-interest accounts.


Choosing the Appropriate Technique

Banks have developed variations on the techniques listed and many more, to suit businesses of all sizes, and have trained advisers to help you choose which ones will best benefit your business. You will probably find you need more than one service. One example of these services is offered by Citizens Financial Group, which launched a user-friendly package of integrated cash management services. Targeted to small- and medium-sized businesses, the package price is 30 to 40 percent cheaper than purchasing each service separately.

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Cash bank