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Financial Management Rupesh Roshan Singh, Lovely Professional University

Notes Unit 13: Management of Cash

CONTENTS
Objectives
Introduction
13.1 Cash Management

13.1.1 Cash Management Planning Aspects
13.1.2 Cash Management Control Aspects
13.2 Cash Collection and Disbursement Systems
13.2.1 Concept of Float
13.2.2 Managing Float
13.3 Cash Management Models
13.3.1 William J Baumol’s Economic Order Quantity Model
13.3.2 Miller – Orr Cash Management Model

13.4 Treasury Management
13.5 The Cash Conversion Cycle
13.6 Management of Marketable Securities
13.7 Summary
13.8 Keywords
13.9 Review Questions
13.10 Further Readings

Objectives

After studying this unit, you will be able to:
 Describe the management of cash
 Discuss cash management planning and control aspects
 Explain the different cash management models
 Recognize the cash conversion cycle

Introduction

Management of cash is an important function of the finance manager. The modern day business
comprises of numerous units spread over vast geographical areas. It is the duty of the finance
manager to provide adequate cash to each of the units. For the survival of the business, it is
absolutely essential that there should be adequate cash. It is the duty of finance manager to
maintain liquidity at all parts of the organization while managing cash. On the other hand, he
has also to ensure that there are no funds blocked in idle cash. Idle cash resources entail a great
deal of cost in terms of interest charges and in terms of opportunities costs. Hence, the question
of costs of idle cash must also be kept in mind by the finance manager. A cash management
scheme, therefore, is a delicate balance between the twin objectives of liquidity and costs.

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