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Unit 9: Cash Management System

expensive and aggravating proposition. Delays of days or even weeks in actualizing outstation Notes
cheques, constant tracking and review to transfer funds from outstation collection accounts,
uncertainty and delays regarding information on the fate of the cheque is common. These affect
the company’s liquidity position and it has to bear a higher interest cost. A cure to this hazard is
the practice of cash management.
Besides, often they find it difficult to have access to funds at the required time since banks pass
on the credit only on realisation. Corporate are not certain of the delay to get the instruments
collected through normal channel of banks and get the funds credited to their accounts which
blocks the treasury management portfolio and strain their liquidity and profitability. Cash
Management offers guaranteed credit and timely MIS.
CMS brings certainty of cash flows and helps in liquidity management. Sectors such as telecom,
utility services, mutual funds and insurance companies benefit most from it because they can
syndicate their receipts from different locations in different forms in a seamless manner.

Caselet Purple Software Solutions’ Missed Opportunities

n Shahadara, Delhi, Mr Gulab Kohli starts a business in the name of Purple Software
Solutions by the capital he inherited after his father sold his toy manufacturing business
Iand died later in the year 1999. Since the money he invested initially was more than
his business needed, Mr Gulab Kohli spent it in maintaining his office lavishly and when
questioned about the same by his wife, he replied that it was all to attract customers.
Obviously, he concentrated more on office maintenance that was required. Also he had
this habit of maintaining some 25 lac rupees in cash at home so that if and when required,
he could spend it. On his also, his wife questioned him once, to which he said that they
may require cash anytime, and since he has a lot of it, there is no harm in keeping it safely
at home.
Later on, when he needed funds for following up his prospective clients, he started falling
short of cash. Reason is for anybody to guess. He spent the money on wrong heads. And
sooner or later, the cash he kept at home had to deplete. As a result of this, he incurred
huge losses and to close his business.

Source: C. Gulati Neelam (2010), “Principles of Banking Management”, Excel Books.

Self Assessment

Fill in the blanks:
6. One of the rising cash management services in India is ..............................
7. A .............................. can give corporate a business advantage.

8. CMS brings certainty of .............................. and helps in ..............................

9.3 Concept of Cash Management Services for Corporate Entity in
India

CMS offers tailor-made collection and payment services, which allow companies to shrink the
realisation time of cheques and streamline their cash flows. As the companies get access to their
funds faster, the need for companies to borrow cash comes down, and lowers their interest
payout. In return, the banks charge the companies a fee, based on the intensity of the transaction,

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