Page 150 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 9: Cash Management System

Notes
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Caution Managing cash flow is the most important task in today’s scenario.
Efficient cash management demands proper outflow and inflow of cash to improve liquidity
and returns while enforcing adequate controls to manage risks.

Notes Cash management is achieving trade-off between liquidity and profitability.
Cash management relates to a broad area of finance requiring the collection, handling, and use
of cash. It involves evaluating market liquidity, cash flow, and investments. Cash management
refers to a number of services that banks tend to offer clients such as large businesses. While
many individuals may use savings or checking accounts and other services furnished by banks,
cash management services tend to be those designed for clients with more complex financial
needs. Some of the most common types of cash management services are account reconcilement,
advanced web services, lock box, cash collection, and armoured car services.
Account reconcilement is one of the most commonly used cash management services. This is a
service that is planned for businesses that write a large number of cheques each month. Cheques
do not always clear right away, meaning that balances are not always easy to determine. In
order to gain a higher level of transparency, account reconcilement enables businesses to get
full list of each and every cheque written in a month, allowing employees to see which cheques
have cleared, which are pending, and what the projected balance of the account should be after
all pending cheques have been deposited and cleared.

Many banks offer cash management services that include advanced web services. These first
allow employees to create log-ins that are more complex than typical consumer log-ins for
greater security. The higher degree of security enables employees to send money to other
locations, accounts, clients, and entities, as well as manage cash in ways that most individual and
small business consumers do not have access to. Lock boxes are generally provided by banks to
large clients who are looking for cash management services. This is a service that allows clients
that receive a large number of checks in the mail to set up their own box in the post office. A
representative from the bank opens the box, removes the cheques, and deposits them into a
proper account.
Banks offer cash collection service to clients who have accounts with a number of other banks.
These clients tend to have locations in a number of geographical locations, including places
where a branch of the main bank is not available. This cash management service provides clients
with the ability to consolidate the cash from a number of different accounts into one account that
is able to collect interest from the primary bank.
Armoured car service is one of the cash management services that many large businesses await.
It allows businesses to have large sums of real cash, as well as other valuable assets, transported
from location to location with increased security and protection. An armoured car normally
transfers cash from the bank to the business and from the business location back to the bank.

Financial instruments involved in cash management include money market funds, treasury
bills, and certificates of deposit.

Did u know? The Reserve Bank of India (RBI) has placed an emphasis on upgrading
technological infrastructure to manage cash efficiently. Electronic banking, cheque
imaging, Enterprise Resource Planning (ERP), Real Time Gross Settlements (RTGS) are
just few of the new initiatives for efficient cash management.

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