The term ‘cash’ constitutes the most readily acceptable item of current assets to a firm. It includes currencies, coins, checks, and also some near-cash items such as marketable securities and bank time deposits. Cash Management is concerned with the collection, disbursement and the management of cash in such a way that a firm’s liquidity is maintained. It is the corporate process of collecting and managing cash, as well as using it for short-term investing.
Some items of cash such as currencies, coins checks are readily available in term of cash whereas, other items such as treasury bills, commercial papers and other marketable securities are readily convertible into cash. Wisely managing cash enables a company to meet unexpected expenses, and to handle regularly occurring events such as payroll. The finance manager must ensure that there is sufficient cash in the business. If there is excess cash, the financial manager must seek to invest in low-risk highly liquid money market instruments that are conveniently convertible into cash.
The term cash management refers to the management of cash resource in such a way that generally accepted business objectives could be achieved. Efficient management of cash prevents loss of money due to theft or error in processing transactions. Cash is regarded as both the input and output of a business operation. Cash serves as input in a sense that all business activities are carried on without any obstructions with the availability of cash. All business works begin with the provision of sufficient cash to do business. At the same time, cash is the thing that a businessman ultimately wants to achieve through the sale of goods and services.
Cash as a means and ends of business operation must be held in sufficient quantity. Holding of cash both in excess and insufficient amount may lead a firm to problems. Shortage of cash puts an obstruction in the production process whereas excessive cash than requirement contributes nothing to the profitability of the firm as idle cash earns nothing. Therefore, a financial manager faces a challenge of maintaining an optimum level of cash, which bypasses the risk and also does not put a negative impact on a firm’s profitability. The basic issue in cash management is to maintain an adequate level of cash and investment of excess cash in low-risk opportunities.