Meaning And Advantages Of Cash Management

Cash Management:

International money managers attempt to attain on a worldwide basis the traditional domestic objectives of cash management: (1) bringing the company‘s cash resources within control as quickly and efficiently as possible and (2) achieving the optimum conservation and utilization of these funds.

Accomplishing the first goal requires establishing accurate, timely forecasting and reporting systems, improving cash collections and disbursements, and decreasing the cost of moving funds among affiliates. The second objective is achieved by minimizing the required level of cash balances, making money available when and where it is needed, and increasing the risk-adjusted return on those funds that can be invested. Restrictions and typical currency controls imposed by governments inhibit cash movements across national boundaries. These restrictions are different from one country to other. Managers require lot of foresight, planning, and anticipation.

Advantages of Cash Management:

When compared to a system of autonomous operating units, a fully centralized international cash management program offers a number of advantages, such as;

• The corporation is able to operate with a smaller amount of cash; pools of excess liquidity are absorbed and eliminated; each operation will maintain transactions balances only and not hold speculative or precautionary ones.
• By reducing total assets, profitability is enhanced and financing costs reduced.
• The headquarters staff, with its purview of all corporate activity, can recognize problems and opportunities that an individual unit might not perceive.
• All decisions can be made using the overall corporate benefit as the criterion.
• By increasing the volume of foreign exchange and other transaction done through headquarters, banks provide better foreign exchange quotes and better service.
• Great expertise in cash and portfolio management exists if one group is responsible for these activities.
• Less will be lost in the event of an expropriation or currency controls restricting the transfer of funds because the corporation‘s total assets at risk in a foreign country can be reduced.