√ Definition of Cash Management, Objectives, Sources, Aspects, Motives and Factors

August 20, 2023
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Definition of Cash Management, Objectives, Sources, Aspects, Motives and Factors – In this discussion we will explain about cash management. Which includes the understanding of cash management, cash management objectives, cash sources, aspects of cash management, management motives cash, factors affecting cash management and examples of cash management with complete and easy discussion understood.

Definition of Cash Management, Objectives, Sources, Aspects, Motives and Factors

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Definition of Cash Management

Cash is nominal cash or all forms of assets that are quick to be disbursed in the company. Another definition of cash is a form of current assets that can be used as soon as possible to pay the company's short-term obligations.

The forms of cash that are often used are cash, deposits, money orders or cash and others. The benefits of cash for companies are in funding related to company operations, fixed asset financing, sustainable company (such as raw materials, employee salaries, operational facilities) for stock returns, taxes, debt, and others etc.

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Cash Management is a set of activities for estimating, planning, collecting, disbursing and investing of a company so that it can operate smoothly. Without good cash management, a company will go bankrupt due to lack of cash, even though the company is making a profit.

Cash Management Objectives

In general, cash management aims to consider the risk of return on funds so that there is a balance between having too much or too little. If the cash invested is too little, it will reduce the opportunity to obtain higher yields in the future.

However, if there is too much cash invested, cash insolvency will occur. If the company's cash is sufficient, the company's ability to meet all the expenses needed by the company will increase. The purpose of cash management in addition to the above also includes two things, namely:

Liquidity
Management must be aware of maintaining liquidity and the amount of cash that must be in the company
earning
Every company expenditure has a goal to obtain a greater possible outcome than the cash issued. And also the management must ensure that payments are made economically.

Source of Cash

In the cash rules, there are several sources of cash flow that exist in the company, including:

The results of trade transactions which also include receivables.
Asset sales
Proof of debt such as money orders, bonds or bank loans
There is additional capital from the owner of the company
Cash income from distribution of shares, rent payments, gifts and taxes of the previous period.
Income from outside the business, such as interest.

Aspects of Cash Management

There are three management aspects that are important in carrying out cash management, including:

Daily Cash Administration

Daily cash administration is an orderly administration of cash receipts and disbursements as well as the final cash balance so that it can be made up to date cash reports, which can provide information regarding the structure of receipts, disbursements, and the final balance of cash at the time needed.

The cash flow information has a function to assess the company's ability to generate cash and enable it users develop models for the assessment and comparison of the present value of the future flows of all company.

By managing good daily cash administration, benefits and good impacts will be obtained for the company.

Cash Budgets

The cash budget is very important in analyzing economic activity so that it can run well and in accordance with company goals.

Cash Iron Inventory

Every financial manager of a company always tries so that the company has regular cash flow. For this reason, cash inflows must be balanced with cash outflows. Or rather, there is no excess or shortage of cash balances.

Excessive cash balances can sacrifice profitability because the amount of cash that is embedded is not productive. On the other hand, if there is a shortage of cash, it can make the company unable to carry out its activities properly and unable to meet the obligations that must be paid.

Cash Management Motives

There are four motives in cash management, which are as follows:

Transaction Motive
Companies need cash to finance their daily activities such as paying employees, paying bills, buying goods and paying for forests.
Precautionary Motive
This motive has a purpose in case there is an unexpected or urgent need.
Speculation Motives
This motive is used to take advantage if there is an opportunity. For example, the company invests cash in securities hoping that after buying the securities, the price will increase.
Compensating Balance Motive
Basically, this motive is related to the company's compulsion to borrow money from a bank.

Factors Affecting Cash

There are several factors that affect cash can increase or decrease in the company, including:

Factors Causing Increased Cash

The following are some of the factors that influence the increase in a company's cash, including:

Investment issued by the shareholder
Debt from the company
accounts receivable
shrinkage
Cash sales
Sales of fixed assets

Factors Causing a Decrease in Cash

There are several factors that cause a decrease in cash in the company, including:

Share buyback
Fulfillment of obligations such as debt and interest
Dividend financing
Operational activities
Purchase of fixed assets
Payment of trade debts

Thus has been explained about Definition of Cash Management, Objectives, Sources, Aspects, Motives and Factors, hopefully can add to your insight and knowledge. Thank you for visiting and don't forget to read other articles.

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