Implication Of Cash Management On Organizations: Importance And Strategies

Problem Statement

Describe about the implication of cash management on organizations.
 

Cash management is referred to as a broad concept that is used to indicate towards the accumulation, concentration and expenditure of cash in a proper way. The prime goal behind the effective management of cash is to balance the expenses and cash collection of the organizations in such a way so that the cash availability in case of the fixed assets and inventories can be maximised (Cash flow - cash management, 1993). This will in turn help the organizations to avoid the risk of getting insolvent. Managing the cash flow is a much necessary factor or responsibility for the business managers by which they can be able to ensure the sustainability of the firms.

Any kind of inaccuracy in the management of cash can lead the business firms to get insolvent. Cash management includes the liquidity position  of the enterprises, short term investments and also the cash balances. Hence it can be said that cash management is the ultimate base of the working capital that a business organization must maintain effectively in order to strengthen their financial position and manage its liquidity thereby ensuring success and profitability of the enterprises (Cash management, 1999). This study will demonstrate overall implication of the cash management on business enterprises and how the management can be able to ensure the potentiality and solvent position of the firms in an effective way.

Cash management is actually very much important for every business enterprise as it helps the businesses to grow and develop by maintaining a smooth and effective balance of cash in the firms. Successful cash management helps to avoid not only insolvent position of the firms and mitigate the bankruptcy, but it also helps to reduce the number of days in the collection of rates, account variables and selection of proper short term investment. Cash flow can be a serious problem for the business enterprises (Cash Management, 1996). Excessive outflow of cash can lead the business organizations to suffer from insolvency. There is no safety margin for the companies suffering from the cash flow issues.

When the companies undergo unanticipated expenses, they have no control over their expenses and as such they might experience serious trouble in accumulating the net funds needed for intervening innovation in the growth and development of the business. It is also perceived that poor management of the cash flow makes it quite difficult for the management to recruit skilled and effective employees for the organizations. Cash is the lifeline of the business. After meeting all the expenses and costs of the business operations, the remaining cash gathered or saved by the management of the companies determines the sustainability and survival of the business.

Research Aims and Objectives

The management of cash within the organizations is of utmost essentiality. Thus realistic projections and effective monitoring of the cash collections and the disbursements help the management to build up strong financial position thereby adhering to the budgetary restrictions. It is quite evident that a company can do nothing without an effective and fruitful cash management policy (Cooke & Leadbetter, 2003). Adequate cash balances in the accounts of the business organizations help the management to have an efficient policy or strategy of managing cash in a proper manner. Thus this study will entail the importance or significance of maintaining cash within the organizations.

If the cash outflows are effectively maintained and managed then it is possible for the management of the organizations to ensure that they can be able to meet all the needs and requirements of the business such as purchase of raw materials, manufacturing costs, packaging and distribution costs, labour wages, etc. Sometimes it is also seen that in order to enhance the reputation and goodwill of the companies, the management often uses their cash balances in certain operations for which the net amount of cash is reduced. It can immensely affect the well being and recognition of the organizations thereby leading them to decline in their efficacy. 

Cash management is considered to be a broad area of financial aspect that deals with the processes of how the business collects and accumulates money, handles it, use it effective for the operations and control the outflow in a proper way. Cash management system is therefore an approach that helps to manage all the aspects related to the financial end of the firms thereby involving the collection of adequate revenue along with checking or maintaining a proper record of the investment of the net cash value of the companies and the other assets. The managerial intervention of the effective cash management will thereby enable the companies to stay flexible and solvent in the overall market they are operating (Costantini, 2006).

Thus the researchers aimed at formulating this research in a proper way so as to evaluate the overall impact of cash management on the business organizations and how the financial managers have been able to imply effective techniques for managing cash and controlling the flow in an efficient way. Thus the principle objectives of the research study conducted by the researchers are understated below:

• To analyse the liquidity position of the company and evaluate the efficient use of the financial resources of the business
• To be able to draw the budget for all the departments of the business firms so that they can easily control the excessive outflow of cash and improve the cash inflows through effective cash management techniques
• To determine the relationship between the liquidity of the business firms and their survival
• To find out what all strategic steps and techniques can the financial managers adopt or implement so that they can assure the organizational strength and efficacy

As mentioned in the study earlier, cash management is very much needed and required within the organizations, especially in the small scale business enterprises so that they can be able to ensure success and profitability of the firms on long term basis. Without proper management of cash, it is quite impossible for the companies to control their cash outflows and ascertain standard cash inflows making the business operations a success. Cash collection are the most appropriate systems that aim at reducing much time in collection of cash owed by the firms (Fabozzi & Masonson, 1995). There are certain sources of time lags involved in the cash collection and disbursement process such as the processing float, mail float, bank float, etc. Hence it is the prime concern of the financial managers of the companies to manage the cash flows effectively so that it can attempt to shorten the length and overall impact of all these float periods.

Research Questions

Certain questions can be highlighted in this respect by the researchers which they will evaluate and find out by the end of their study. Those research questions are as follows:

• How can the business firms attain the liquidity position by managing the cash flows?
• How can the business enterprises use of the financial resources of the business effectively for ensuring their success and profitability?
• What is the relationship between the liquidity of the business firms and their survival?
• What techniques can be incorporated within the business so as to fruitfully manage the cash collection and disbursement?

All these above headed questions will help the researchers to accomplish and meet the actual aim of the research thereby providing the best answers relevant to the questions depicting the impact of the managerial implication of cash management within the organizations. 

This particular research project is concerned mainly with the evaluation of the implication of cash management strategy on the well being and efficacy of the business organizations. It has been hereby perceived and assessed that cash must be collected and maintained much effectively by the financial managers which will enable them to ascertain the actual cash collection and its outflow for the survival of the business (Fabozzi & Masonson, 1995). This topic of research is the utmost essential topic which will need further investigation and evaluation so that the researchers can derive the different usefulness in implementing cash management techniques within the organizations that have the potentiality to lead the companies to the highest peak of success and recognition.

It is quite natural that the business organizations can thrive for success and achievement if they are able to manage their cash amount effectively by complying with all the financial rules and regulations (Grieves, 1992). Once the money is being collected or accumulated, most of the business enterprises are likely to proceed towards aiming at primarily concentrating on the cash of the companies. The researchers have thus showed interest in further enquiry in order to explore the initiation of the business to have complete control over the cash and have much opportunities for investment on the future projects. According to Flaherty, (2015), another most important aspect of cash management within the organizations is to gain knowledge about the net cash balance of the business. The management must opt for various methods and strategies for creating a magical cash balance.

It is however be notified that the principle motive behind maintaining a good cash balance within the enterprises is to control the cash disbursement and ensure liquidity of business (Hovakimian, 2009). It is the most significant aspect within the organizations as by managing the net cash will thereby help the managers to secure the survival of the business and maintain a strong financial position. As per Rosecky, (2015), cash has always been the most disregarded concept in the financial decision making process within the organizations. It is however an important component of the firms where the management determines the lifeline of the business. Lack of management is the main issue behind the fall of the business organizations as they underwent into liquidation position. Hence additional investigation of the particular research topic is of extreme importance so as to find out the effectiveness of managing and controlling the flow of cash within the organizational premises.

The entire research study will therefore pertain and provide an analytical concept regarding the different factors that can lead to the effective management of cash within the business enterprises and how far the financial managers play an extensive role in controlling the net flow of cash for ensuring organizational benefit and success (Foster Back, 1998). In order to highlight the impact of the cash management policies in ascertaining the effectiveness and sustainability of the organizations will be ultimately derived from the research study. With the help of proper research procedures and methods, the researchers will be able to seek the opinions of the selected respondents of the research and can draw out the estimated budget against every activity undertaken to carry out the entire research procedure. The researchers of this research must be very much skilled and efficient so that they can fulfil their desired research objectives or goals. 

References

Cash flow - cash management. (1993). Canberra.

Cash management. (1999). Mississauga, ON.

Cash Management. (1986). Hamilton, Ont.

Columbus, A. (2009). Advances in psychology research. New York: Nova Science Pub.

Cooke, R. & Leadbetter, C. (2003). Positive cash flow. Franklin Lakes, NJ: Career Press.

Costantini, P. (2006). Cash return on capital invested. Amsterdam: Butterworth-Heinemann.

Fabozzi, F. & Masonson, L. (1985). Corporate cash management. Homewood, Ill.: Dow Jones-Irwin.

Flaherty, S., Rosecky, R., Hillard, J., & Singer, D. (2015). The Impact of Cash Flow and Debt on Organizational Agility. Global Journal Of Flexible Systems Management, 16(2), 133-143.