Cash is king and maximizing cash available for use is a major challenger for most companies. This is done with the help of cash management systems. Successfully managing cash is an essential skill for small businesses, because they typically have less access to affordable credit and have a significant amount of upfront costs to manage while waiting for receivables. Wisely managing cash enables a company to meet unexpected expenses, and to handle regularly occurring events such as payroll.
1. Decentralized collection
An outstation cheque traveling all the way to head office and going back again for clearing is a huge waste of time. This can be avoided by branches of the bank receiving the cheque and using the not connectivity for updating the system at the head office and enables credit to be given to the HO account the next day itself.
2. Concentration banking
This idea has evolved into a compact banking practice knows as concentration banking a company will have the overdraft at the ho, and a plethora of current accounts in all its sales and stock points to concentration banking, information is always available on balances across the country, and transfers are enabled. Even international marketing level this is increasingly becoming a practice: a global company does not work with a local bank but prefers to work with a branch of its main bank at the HO.
3. Lockbox system
Here the cheques are received directly into a lockbox provided for the purpose by the bank, and customers are advised to send their cheque to this lockbox. Through this process, the in involved for the customers in collecting and depositing the cheques is eliminated. Thus one more link in the chain is thus removed, speeding up the process.
4. Electronic receipts and payments
In the new age of anywhere and anytime banking, it is now possible to directly credit the payee’s account using online banking services. This is especially beneficial for making regular payments like payment of salaries and payment to vendors. Only a simple list of payees and amounts, duly authorized, is sent to the bank, and credits happen instantly if employees have accounts in the same branch. Banks also give the facility to their customers of pre and mailing cheques on their behalf, reducing the clerical workload of the customers. All this facilitates control over bank balances a great deal because one does not have to worry about the float.
5. Electronic data transfer between constituents
When two companies are in advanced stages of automating all their processes, paperwork relating to the transactions between them can disappear altogether. This is facilitated by electronic transfer of orders, invoices, debit notes and final payments and receipts. The reconciliation is also done online. Accounting packages provide an excellent interface with spread-sheets from which data can be downloaded or into which data can be uploaded and sent.
6. Improved clearing systems of banks
Thanks to advanced information technology banks have effected innovations in clearinghouse activities and this has in turn reduced turnaround time significantly.
7. Payment management
Large companies operate on payment cycles viz. specific days of the week or the month when payments to vendors would be organized. If the vendor is lax or if the invoice is not made properly he will miss the cycle and has to perforce wait till the next cycle, even if the bill becomes due in between.
This is a good method also to get the company’s vendors to become more efficient and precise in their administration, documentation, and accounting, and can have lasting benefits in year-end closing and audit time and effort.
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