Managing the Cash Position

Working Capital Management has two objectives:
    • Ensure the availability of funds for day to day operations
    • Utilize the asset efficiently to generate maximum profit.
  • A company has certain inflows and outflows of cash every day, if the outflows exceed inflows then the cash is in deficit and if the inflows exceed outflow, the cash is in surplus. Working Capital Management must ensure a balance between cash deficit and cash surplus.
  • To determine the net cash flow for a day a company must match the inflows and outflows daily:
    • If the net cash flow is in surplus, the company may deploy the excess funds in saving instruments to generate profit.
    • If the net cash flow is in deficit, the company may need to borrow money to fund its operations.
  • The functions listed above are performed by the treasury or Cash Department of an Organization which is the central authority to manage cash and cash related tasks in the company.
  • Degree of Centralization plays a major role in managing the Cash Position in an organization. More decentralized the organization, the more difficult it is to analyze the cash position of an organization.
  • The flowchart given below helps to understand the process carried out by the Treasury to manage cash position:
    1. On a day, the Treasury at the Head office receives the balance of accounts from the bank.
    2. The details of transactions scheduled or unplanned at various offices are received to Head Office.
    3. The Treasury calculates the expected cash flow, if the inflow is high, the balance amount is invested in the market at the end of day
    4. If the outflow is high, the Treasury arranges funds to manage the day to day operations.
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