METHODOLOGY

The methodology used in the present study entitled Efficiency of

cash management is shown in this chapter.

The present report is

prepared with the help of both primary and secondary data.

BENEFITS OF THE STUDY

This study will help the organization in the following way:

To analyze the current cash management.

To predict the future receipts and payments.

To improve the debtors collection period.

To invest the surplus funds.

SCOPE OF THE STUDY

The study includes the budgeting of the various incomes and
expenditure for the future period and also, to study whether the
investment of surplus of funds is done in an efficient manner. The present
report is prepared with the help of both primary and secondary data.

LIMITATIONS OF THE STUDY

This study has some limitations, such as:

The study is limited only to the over all cash management of Strides
Arcolab Limited.

Time factor.

The budgeting is depending on variable technique.

Investment proposals carry the limitation of Miller-Orr Model.

OBJECTIVE OF THE STUDY

To study the overall cash management in Strides Arcolab Limited.

To classify various expenses and comparison

To prepare cash budget for a year (January 2007 to December 2007)

To manage surplus cash and various way for investment

These objects are taken to study mainly because a proper cash management
will give solutions to other problems like wage payment, debtor collection etc.

Objective 1
To study the overall cash management in Strides Arcolab Limited.
This objective can be achieved by observing the various books of accounts,
Debtors collection method, and cash cycle.

Objective 2
To classify various expenses, this objective can be achieved by grouping the
various expenses shown in cost sheet

Objective 3
To prepare the cash budget for a year. This objective can be achieved by
analyzing the past records of sales and cost book.

Objective 4
To manage investment of surplus fund, this objective can be achieved by
analyzing the cash budgeting and using the Miller-Orr model.

Introduction

Cash is the important current asset for the operations of the business. Cash is the
basic input needed to keep the business running on a continuous basis; it is also the ultimate
output expected to be realized by selling the service or product manufactured by the firm. The
firm should keep s u f f i c i e n t c a s h , n e i t h e r m o r e n o r l e s s . C a s h s h o r t a g e w i l l
d i s r u p t t h e f i r m s m a n u f a c t u r i n g operations while excessive cash will simply
remain idle, without contributing anything towards the firms profitability. Thus, a
major function of the financial manager is to maintain a sound cash position.
Cash is the money which a firm can disburse immediately without any restriction. The term
cash i n c l u d e s c o i n s , c u r r e n c y a n d c h e q u e s h e l d b y t h e f i r m , a n d b a l a n c e s
i n i t s b a n k a c c o u n t s . Sometimes near-cash items, such as marketable securities
or bank times deposits, are also included in cash. The basic characteristic of near-cash

assets is that they can readily be converted into cash. Generally, when a firm has excess cash,
it invests it in marketable securities. This kind of investment contributes some profit to the
firm

MOTIVES FOR HOLDING CASH

The firms need to hold cash may be attributed to the following the motives:
The transactions motive
The precautionary motive
The speculative motive

Transaction Motive
The transaction motive requires a firm to hold cash to conducts its business in the
ordinary course. The firm needs cash primarily to make payments for purchases, wages and
salaries, other operating expenses, taxes, dividends etc. The need to hold cash
would not arise if there were perfect synchronization between cash receipts and
cash payments, i.e., enough cash is received w h e n t h e p a y m e n t h a s t o
be made. But cash receipts and payments are not perfectly
synchronized. For those periods, when cash payments exceed cash receipts, the
firm should maintain some cash balance to be able to make required payments.
For transactions purpose, a firm may invest its cash in marketable securities.
Usually, the firm will purchase securities whose maturity corresponds with some
anticipated payments, such as dividends, or taxes in the future. Notice that the
transactions motive mainly refers to holding cash to meet anticipated payments
whose timing is not perfectly matched with cash receipts.

Precautionary Motive
The precautionary motive i s t h e n e e d t o h o l d c a s h t o m e e t c o n t i n g e n c i e s i n
the

future.

It

provides

cushion

or

buffer

to

withstand

some

u n e x p e c t e d e m e r g e n c y. T h e p r e c a u t i o n a r y amount of cash depends upon the

predictability of cash flows. If cash flow can be predicted with accuracy, less cash will be
maintained for an emergency. The amount of precautionary cash is also influenced
by the firms ability to borrow at short notice when the need arises. Stronger the a b i l i t y o f
the firm to borrow at short notice, less the need for precautionary
b a l a n c e . T h e precautionary balance may be kept in cash and marketable securities.
Marketable securities play an important role here. The amount of cash set aside for

precautionary reasons is not expected to e a r n a n y t h i n g ; t h e r e f o r e , t h e f i r m

a t t e m p t t o e a r n s o m e p r o f i t o n i t . S u c h f u n d s s h o u l d b e invested in highliquid and low-risk marketable securities. Precautionary balance should, thus,
held more in marketable securities and relatively less in cash.

Speculative Motive
The speculative motive r e l a t e s t o t h e h o l d i n g o f c a s h f o r i n v e s t i n g i n
p r o f i t - m a k i n g opportunities as and when they arise. The opportunity to make profit
may arise when the security prices change. The firm will hold cash, when it is
expected that the interest rates will rise and security prices will fall. Securities can be
purchased when the interest rate is expected to fall; the firm will benefit by the subsequent
fall in interest rates and increase in security prices. The firm may also speculate on materials
prices. If it is expected that materials prices will fall, the firm can postpone materials
purchasing and make purchases in future when price actually falls. Some firms may hold
cash for speculative purposes. By and large, business firms do not engage in
speculations. Thus, the primary motives to hold cash and marketable
s e c u r i t i e s a r e : t h e transactions and the precautionary motives.

CASH MANAGEMENT
Cash management is a broad term that refers to the collection, concentration, and
disbursement of cash. It encompasses a companys level of liquidity, its management of cash
balance, and its short-term investment strategies. In some ways, managing cash flow is the
most important job of business managers.For some time now, technology has been the key
driving force behind every successful bank. In such an environment, the ability to recognize
and capture market share depends entirely on the banks competence to evolve technically
and offer the customer a seamless process flow. The objective of a cash management system
is to improve revenue, maximize profits, minimize costs and establish efficient management
systems to assist and accelerate growth.

Cash Management in India

The Reserve Bank of India (RBI) has placed an emphasis on upgrading technological
infrastructure. Electronic banking, cheque imaging, enterprise resource planning (ERP), real
time gross settlement (RTGS) is just few of the new initiatives.
The evolution of payment systems such as RTGS has posed some tough challenges for cash
management providers. It is important that banks now look towards a shift to fees from float
although all those cash management providers who have factored in float money in their
product pricing might take a hit. But of course there are opportunities also attached like
collection and disbursal of payments on-line across the banks.
There are a number of regulatory and policy changes that have facilitated an efficient cash
management system (CMS). Fox example, the Enactment of Information Technology Act
gives legal recognition to electronic records and digital signatures. The establishment of the
Clearing Corporation of India in order to establish a safe institutional structure for the
clearing and settlement of trades in foreign exchange (FX), money and debt markets has
indeed helped the development of financial infrastructure in terms of clearing and settlement.
Other innovations that have supported in streamlining the process are:
1. Introduction of the Centralized Funds Management Service to facilitate better
management of fund flows.
2. Structured Financial Messaging Solution, a communication protocol for intra-bank
and interbank messages.
Today, treasurers need to ensure that they are equipped to make the best decisions. For this, it
is imperative that the information they require to monitor risk and exposure is accurate,
reliable and fast. A strong cash management solution can give corporates a business
advantage and it is very important in executing the financial strategy of a company. The
requirement of an efficient cash management solution in India is to execute payments, collect
receivables and managing liquidity.

FACTS OF CASH MANAGEMENT

Cash management is concerned with the managing of: (i) cash flows into and out of
the firm,(ii) cash flows within the firm, and (iii) cash balances held by the firm
at a point of time by financing deficit or investing surplus cash. Sales generate
cash which has to be disbursed out. The surplus cash has to be invested while deficit has

to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost. At the
same time, it also seeks to achieve liquidity and control. Cash management assumes
more importance than other current assets because cash is the most significant and
the least productive asset that a firm holds. It is significant because it iss u e d t o p a y t h e
f i r m s o b l i g a t i o n s . H o w e v e r, c a s h i s u n p r o d u c t i v e . U n l i k e f i x e d a s s e t s
o r inventories, it does not produce goods for sale. Therefore, the aim of cash
management is to maintain adequate control over cash position to keep the firm
sufficiently liquid and to use excess cash in some profitable way.
Cash management is also important because it is difficult to predict
c a s h f l o w s a c c u r a t e l y, particularly the inflows, and there is no perfect coincidence
between the inflows and outflows of cash. During some periods, cash outflows will
exceed cash inflows, because payment of taxes, dividends, or seasonal inventory
builds up. At other times, cash inflow will be more than cash p a y m e n t s b e c a u s e
there may be large cash sales and debtors may be realized in large sums
promptly. Further, cash management is significant because cash constitutes the smallest
portion of the total current assets, yet managements considerable time is devoted
in managing it. In r e c e n t p a s t , a n u m b e r o f i n n o v a t i o n s h a v e b e e n d o n e i n
c a s h m a n a g e m e n t t e c h n i q u e s . An obvious aim of the firm these days is to
manage its cash affairs in such a way as to keep cash balance at a minimum level and
to invest the surplus cash in profitable investment opportunities. I n o r d e r t o r e s o l v e t h e
u n c e r t a i n t y a b o u t c a s h f l o w p r e d i c t i o n a n d l a c k o f s yn c h r o n i z a t i o n
between cash receipts and payments, the firm should develop appropriate
strategies for cash management. The firm should evolve strategies regarding the
following four facets of cash management:

Optimum Utilization of Operating Cash

Implementation of a sound cash management programme is based on rapid
generation, efficient utilization and effective conversation of its cash resources.
Cash flow is a circle. The quantum and speed of the flow can be regulated
through prudent financial planning facilitating t h e r u n n i n g o f b u s i n e s s w i t h
t h e m i n i m u m c a s h b a l a n c e . T h i s c a n b e a c h i e v e d b y m a k i n g a proper
analysis of operative cash flow cycle along with efficient management of working capital.

Cash Forecasting

Cash forecasting is backbone of cash planning. It forewarns a business

r e g a r d i n g expected cash problems, which it may encounter, thus assisting it to
regulate further cash flow movements. Lack of cash planning results in spasmodic cash
flows.

Cash Management Techniques:

Every business is interested in accelerating its cash collections and decelerating
cash payments so as to exploit its scarce cash resources to the maximum. There are
techniques in the cash management which a business to achieve this objective.

Liquidity Analysis:
The importance of liquidity in a business cannot be over emphasized. If one does
the autopsies of the businesses that failed, he would find that the major reason
for the failure was their inability to remain liquid. Liquidity has an intimate relationship
with efficient utilization of cash. It helps in the attainment of optimum level of liquidity.

Profitable Deployment of Surplus Funds

Due to non-synchronization of ash inflows and cash outflows the surplus cash may arise at
certain points of time. If this cash surplus is deployed judiciously cash management will itself
become a profit center. However, much depends on the quantum
o f c a s h s u r p l u s a n d acceptability of market for its short-term investments.

Economical Borrowings
Another product of non-synchronization of cash inflows and cash outflows is emergence of
deficits at various points of time. A business has to raise funds to the extent and for the period
of deficits. Rising of funds at minimum cost is one of the important facets of cash
management.
The ideal cash management system will depend on the firms products,
organization structure, competition, culture and options available. The task is
complex, and decisions taken can affect important areas of the firm. For example, to
improve collections if the credit period is reduced, it may affect sales. However, in certain
cases, even without fundamental changes, it is possible to significantly reduce cost of
cash management system by choosing a right bank and controlling the collections
properly.

Baumol model of cash management

Baumol model of cash management helps in determining a firm's optimum cash balance
under certainty. It is extensively used and highly useful for the purpose of cash management.
As per the model, cash and inventory management problems are one and the same. William J.
Baumol developed a model (The transactions Demand for Cash: An Inventory Theoretic
Approach) which is usually used in Inventory management & cash management.Baumol
model of cash management trades off between opportunity cost or carrying cost or holding
cost & the transaction cost. As such firm attempts to minimize the sum of the holding cash &
the cost of converting marketable securities to cash.
There are certain assumptions that are made in the model. They are as follows:
1. The firm is able to forecast its cash requirements with certainty and receive a specific
amount

at

regular

intervals.

2. The firms cash payments occur uniformly over a period of time i.e. a steady rate of cash
outflows.
3. The opportunity cost of holding cash is known and does not change over time. Cash
holdings

incur

an

opportunity

cost

in

the

form

of

opportunity

foregone.

4. The firm will incur the same transaction cost whenever it converts securities to cash. Each
transaction incurs a fixed and variable cost.
For example, let us assume that the firm sells securities and starts with a cash balance of C
rupees. When the firm spends cash, its cash balance starts decreasing and reaches zero. The
firm again gets back its money by selling marketable securities. As the cash balance
decreases gradually, the average cash balance will be: C/2. This can be shown in following
figure:

The firm incurs a cost known as holding cost for maintaining the cash balance. It is known as
opportunity cost, the return inevitable on the marketable securities. If the opportunity cost is
k, then the firms holding cost for maintaining an average cash balance is as follows:
Holding cost = k (C/2)
Whenever the firm converts its marketable securities to cash, it incurs a cost known as
transaction cost. Total number of transactions in a particular year will be total funds required
(T), divided by the cash balance (C) i.e. T/C. The assumption here is that the cost per
transaction is constant. If the cost per transaction is c, then the total transaction cost will be:

Transaction cost = c (T/C)

The total annual cost of the demand for cash will be:
Total cost = k (C/2) + c (T/C)
Optimum level of cash balance
As the demand for cash, C increases, the holding cost will also increase and the transaction
cost will reduce because of a decline in the number of transactions. Hence, it can be said that
there is a relationship between the holding cost and the transaction cost.
The optimum cash balance, C* is obtained when the total cost is minimum.
Optimum
Where,
T

cash
C*

is

the

balance
is

total

(C*)

the
cash

optimum
needed

during

2cT/k

cash

balance.

the

year.

k is the opportunity cost of holding cash balances.

With the increase in the cost per transaction and total funds required, the optimum cash
balance will increase. However, with an increase in the opportunity cost, it will decrease.

Limitations of the Baumol model:

1.

It

2.

does
Overdraft

not

allow

cash

is

flows
not

to

fluctuate.
considered.

3. There are uncertainties in the pattern of future cash flows.

Miller-Orr Model for Cash Management

Most firms maintain a minimum amount of cash on hand to meet daily obligations or as a
requirement fromthe firm's bank. A maximum amount may also be specified to reflect the
tradeoff between the transactions cost of investing in liquid assets (e.g.Money Market Funds)
and the cost of lost interest if the cash is not invested. The Miller-Orr model computes the
spread between the minimum and maximum cash balance limits as.
Spread= 3(0.75 x transaction cost x variance of daily cash flows / daily interest rate) ^(1/3)
(wherea^b is used to denote "a to the power b").
The maximum cash balance is the spread plus the minimum cash balance, which is assumed
to be known.
The "return point" is defined as the minimum cash balance plus spread/3.

Whenever the cash balance hits (or exceeds) the maximum, the firm should invest the
difference betweenthe amount available and the return point; if the minimum is reached,
sufficient securities should be sold tobring it up to the return point.

Graph Explanation:
i.

When cash balance reaches point A', the upper limit, company will invest the surplus

ii.

to bring down the cash balance to return point.

When cash balance touches down point `B', the lower limit, the company would

iii.
iv.
v.

liquidate some of its securities to increase the balance back to return point.
Upper and lower limits are determined as explained above.
These limits depend upon variance of cash flow, transaction cost and interest rate.
If variability of cash flow is high and transaction cost is high too, then the limits will

vi.
vii.

be wide apart, otherwise narrow would suffice.

If interest rates are high then the narrow limits would be set
To keep interest cost as low as possible, the return point is set 1/3 of the spread
between the lower and upper limit.

Purpose of Cash Management

Cash management is the stewardship or proper use of an entitys cash resources. It serves as
the means to keep an organization functioning by making the best use of cash or liquid
resources of the organization.
The function of cash management at the U.S. Treasury is threefold:
1 . To e l i m i n a t e i d l e c a s h b a l a n c e s . E v e r y d o l l a r h e l d a s c a s h r a t h e r
t h a n u s e d t o a u g m e n t revenues or decrease expenditures represents a
lost opportunity. Funds that are not needed to cover expected transactions can
be used to buy back outstanding debt (and cease a flow of funds out of the Treasury
for interest payments) or can be invested to generate a flow of funds into the
Treasurys account. Minimizing idle cash balances requires accurate information
about expected receipts and likely disbursements.
2. To deposit collections timely. Having funds in-hand is better than having accounts
receivable. T h e c a s h i s e a s i e r t o c o n v e r t i m m e d i a t e l y i n t o v a l u e o r
g o o d s . A r e c e i v a b l e , a n i t e m t o b e converted in the future, often is
subject to a transaction delay or a depreciation of value. Once funds are
due to the Government, they should be converted to cash-in-hand
immediately and deposited in the Treasury's account as soon as possible.

3. To properly time disbursements. Some payments must be made on a

specified or legal date, such as Social Security payments. For such payments,
there is no cash management decision. For other payments, such as vendor payments,
discretion in timing is possible. Government vendors face the same cash
management

needs

as

the

Government.

They

want

to

accelerate

collections. One way vendors can do this is to offer discount terms for timely
payment for goods sold.

The importance of cash management

1. Cash is crucial for every business. Every company has to have cash on hand or at least
access to cash in order to be able to pay for the goods and services it uses, and
consequently, to stay in business. By ensuring the company with the necessary funds
for supporting its everyday operations, cash management becomes a vital function for
the company. Cash flows have an impact on the companys liquidity. Liquidity is the
ability of the company to pay its obligations when they come due. It is comprised of:

cash on hand, assets readily convertible into cash, as well as ready access to cash from
external sources, such as bank loans (Coyle, 2000, p. 3). If cash flows and liquid
funds are not effectively and successfully planned and managed, a company may not
be able to pay its suppliers and employees in a timely manner. It may be profitable
according to its financial statements, but in fact, this company will not be able to pay
its obligations when they come due. Moreover, lack of liquidity will incur increased
costs in the form of interest charges on loans, late payment penalties and losing
supplier discounts for paying obligations on time. Proper cash management can avoid
the costs of additional funding and can provide the opportunity for more favorable
terms of payment (Dropkin& Hayden, 2001, p. 3). In the worst case scenario, if the
liquidity shortage continues for the longer term, the company might face no access to
external resources, ending into insolvency (Coyle, 2000, p. 3). Therefore, once again,
it follows that cash management has a critical importance for the life of every
company.5 another benefit of cash management to the company is that it makes the
company financially flexible. Ready access to cash enables the company to undertake
expenditure decisions if and whenever it wishes, without the trouble and constraint of
finding new financial support (Coyle, 2000, p. 3). The ultimate goal of every
company is maximizing shareholder value, i.e. maximizing the net present value of
future cash flows. Cash management contributes to attaining that goal as well. If a
firm keeps high levels of cash, it increases its net working capital and the costs of
holding cash, both of which decrease the value of the firm. Cash management
influences the value of the firm by limiting cash levels so that an optimal balance
between the costs of holding cash and the costs of inadequate cash is achieved. In
addition, cash management influences firm value, because its cash investment levels
entail the rise of alternative costs, which are affected by net working capital levels.

LITERATURE REVIEW
Davidson (1992) defined cash management as a term which refers to the collection
concentration and disbursement of cash. It encompasses a companys level of liquidity,
management of cash balance and short term strategies. Weak cash flow makes it difficult to
hire and retain good employees (Beranek, 2000). Ross (2000) says that, it is only natural that
major business expenses are incurred in the production of goods or the provision of services.
In most cases, a business incurs such expenses before the corresponding payment is received
from customers. In addition, employee salaries and other expenses drain considerable funds

from most business. These make effective cash management an essential part of the business
financial planning. Vanhorne (2001) says that, a common cash management tool found in
companies is a cash budget. Most companies prepare budgets on the departmental level and
roll these individual budgets into one master budget. Creating several smaller budgets, can
help managers determine which operations use more cash and struggle to stay on the
projected budget amounts. This discovery gives managers an idea of when improvements
needed to correct the companys cash flow problems. Therefore, cash budgeting is another aid
to an effective cash management. Pindado (2004) also defines cash management as part of
working capital that makes up the optimal level needed by a company. Bort (2004) noted that,
cash management is of importance for both new and growing businesses. Companies may
suffer from cash flow problems because of lack of margin of safety in case of anticipated
expenses such that they experience problems in finding the funds for innovation or expansion
According to Bort (2004) cash is the lifeblood of the business. The key to successful cash
management lies in tabulating realistic projections, monitoring collections and disbursements,
establishing effective billing and collection measures, and adhering to budgetary parameters
because cash flow can be a problem to the business organization. According to Moffet
(2004), postponing capital expenditure is one method that can ease cash shortage hence,
suggests efficient cash management. Kirkman (2006) states that, some capital expenditures
are more important and urgent than others hence, it might be imprudent to postpone
expenditure on fixed assets which are needed for the development and growth of business.
On the other hand, some expenses are routine and might be postponable without serious
consequences. When a lot of cash is used to pay for fixed assets, the company may come up
against a cash crunch that prevents it from paying suppliers, buying materials and even
paying salaries. Its a good idea, to maintain a level of working capital that allows making
through those crunch times and continuing to operate the business.

Functions of Cash Management

To achieve objective the financial manager has to ensure that investment in cash is efficiently
utilized. For that manner he has to manage cash collections and disbursements efficiently determine
the appropriate cash balances and invest surplus cash.
Efficient cash management functions calls for cash planning evaluations of benefits and cost of
polices, procedure and practices and synchronization of cash in flows and out flows.
It is significant to note that cash management functions are intimately interrelated and intervened.
Linkage among different cash management functions has lead to the adoption of the following
methods for efficient cash management.

Use of techniques of cash mobilizations to reduce operating equipment of cash

Major efforts to increase the precision and reliability cash forecasting.

Maximum efforts to define and quantified the liquidity reserve needs of the firms.

Development of explicit alternative source of liquidity

Aggressive search for relative more productive uses for surplus money assets

The above approaches involves the following action a finance manager has to perform

To forecast cash inflows and outflows

To plan cash equipment

To determine the safety level of cash

To monitor the safety level of cash

To locate the needed funds

To regulate cash in flows

To regulate cash out flows

To determine criteria for investment of excess cash

To avail banking facilities and maintaining good relations with bankers

Thus for achieving the goals of cash management, a finance manager has to plan cash needs of the
firm. This s followed by the management of cash flows determinations of optimum level of cash
finally investment of surplus cash

THE PROBLEM IDENTIFIED

The following problems found in Strides Arcolab Limited.

Problem of cash management.

Problem of debt collection system.

Management of surplus cash.

Problem of accounts receivables management.

Problem of working capital management.

CASH MANAGEMENT SERVICES AND INFORMATION TECHNOLOGY

In the inaugural address given by Kamosam on the above topic reveals that the fundamental
objective of cash management is optimization of liquidity through an improved flow of funds. It is
suggested in the address that a good cash management is a conscious process of knowing when,
where and how a companys cash needs will occur, knowing what the best sources for meeting
additional cash needs and being prepared to meet those needs when they occur by keeping good
relation ship with bankers and other creditors.

DONT TAKE AN ORDER YOU CANNOT MAKE A PROFIT ON

Philip Rock well said that it is hard principle to adhere to when you are trying to close a new
account. Once you have established a low price, it is very difficult to raise prices later on. Also,
customers brag about the deal they got from you, and now everybody expects the same the same
deal. It is extremely difficult sustain a business with low margins.
(www.cfsa.com)

OFFER VOLUME DISCOUNTS JUDICIOUSLY

William Charles viewed that if you plan to offer volume discounts, base them only on orders actually
received, not on the promise of future volumes. Some companies will request a price asserting they
will be buying quantities of your product over a long period. After the volume discount price is
established, only a few items at this low price will be purchased. Establish a discount schedule that
defines a specific discount for a specific quantity purchased. Apply larger discounts when, and only
when, larger quantities are purchased
(www.icon.com)

BUSINESS CASH MANAGEMENT

Financial managers employ a variety of cash managements techniques to minimize loans from out
side sources and to ensure that there is sufficient cash on hand to meet its obligations. This is called

efficient business cash management. Good cash management improves a companys profitability by
shortening the collection time line, reducing operational costs and slowing disbursements of cash
according to this, business management is concerned with maximizing cash flow, maintaining cash
reserve, managing business lines of credit and improving operational efficiency.

DONT WAIT UNTIL THE END OF A MONTH

Prof. W.E. Saquiddin reported that Dont wait until, the end of the month or a fixed date to send
invoices-send them immediately. If you ship a product at the beginning of a month an of wait until
the end of the month to send an invoice with thirty (30) day terms, then the payment cycle is sixty
(60) days. If the invoice is sent immediately, then the cycle is thirty (30) days. A long payment cycle
can cripple the company cash wise. Always include a Due Date on every invoice.
(www.icon.com)

IMPORTANCE OF CASH MANAGEMENT

According to study there are many techniques available for helping a business to improve the cash
flow. Some of these techniques are sell for cash or credit cards rather than on terms, if you do cell on
terms establish good credit polices ,bill promptly, add late charges and fees when possible ,tighten
customer credit requirements pay bills only on due date or later it possible. Reduce the inventory to
the most necessary items, dump slow moving items at cost, lease instead of purchasing equipment.
Make bank deposits promptly, consider prudent borrowing, increase sales and increase prices.

TAKE ADVANTAGE OF OPPORTUNITIES

James Walker said that cash budgeting help in knowing the exact state of your personal monetary
affairs, and being in control of them, allows you take advantage of opportunities that you might
otherwise miss. Have you ever wondered if you could afford something? With a budget, you will
never have to wonder again-you will know.
(www.indiatimes.com).

LOCK BOX SERVICES

The flag ship bank is of the opinion that businesses can measurable speed conversion conversions of
their receivable into usable cash by relaying on the lock box services provided by them. There
payments processing specialists will receive every day payments verify the match of invoice amount
and payment receive, and deposit all cheque .they forward all the supporting details to the business
firm by direct transmission. The benefits of the system are quick deposition of all remittance to speed
up the available funds, complete deposits informations to manage cash position and make the staff
directed to other functions.

OFFER DISCOUNT FOR EARLY PAYMENT

NGI MICHEL VILIOP reported that there are pluses and minuses with this tactic. It is assumed that
with this tactic, cash flow would generally be more rapid, but this is not always true. If you offer an
early payment discount to a client who always pays invoices on time, then you have unnecessarily
given away part of your profit. Many large companies have a standing policy whereby they take
every discount available because they understand the value that is being offered. Other companies
will take the discount even though they have not collect the discount can be more costly than the
actual value of the discount. Offering an early payment discount to a slow payer may be just the
incentive that is needed to collect payments of time. Analyze your clients payment history and
selectively apply this strategy for maximum benefit.
(www.solvency.com)

MANAGING OVERDUE ACCOUNTS

Michelle l Hewlett said that charging interest on over due accounts may help to receive payments on
time as companies do not like to be penalized or pay more for a product or service than is necessary.
This element of the payment terms should also be discussed early in the sales cycle. Although
charging interest on a past due account is a standard practice in most industries, as with early
payment discounts it can be costly to collect if the customer does not pay the interest. However,
assessing the late fees on a original invoice (oftentimes less the interest) which is far more important
than collecting late fees.
(www.timesofindia.com)

IMPORTANCE OF CASH
Robins, while emphasizing the importance of cash in business, suggested that cash as a strong
commodity. A business wants to get hold of it in the shortest possible time but to keep least possible
quantity on hand. Increased sophistication in the handling of cash as enabled companies to cut down
on the balances needed to sustain any given level of operations.
(www.acfm.com)

CONTROL
Mark J. Randall viewed that a budget is the key to enabling you takes charge of your finances. With a
budget, you have the tools to decide exactly what is going to happen to your hard-earned money-and
when. You can be in control of your money, instead of having your money limit what you do. This
bears repeating: you can be in control of your money, instead of letting it control you!

(www.acfm.com)
YOUR BUSINESS CHALLENGE
ABN AMRO opinions that todays treasurers need rapid and reliable informations, so that risk and
disclosure can be accurately monitor for improved decision making. Efficient cash management
processes are needed to execute payment, collect receivables and manage liquidity. A strong cash
management is essential to execute a companys financial strategy in the world of intense
competition ever-changing e-business opportunities and economic volatility.

(www.vivisimo.com)
MANAGING YOUR ACCOUNTS RECEIVABLE
In the words of Jim ODonnell, managing cash is one of the most critical elements to having a
profitable business. Without proper understanding of the cash Cycle, many businesses find
themselves cash constrained, thus limiting management ability to conduct day-to-day operations as
well as make long-term investments to ensure the viability of the business.
(Praxis Jan-2004)

EFT (Electronic Funds Transfers)

The flag ship company is of the opinion that business customer originate and receive EFT
(Electronic Funds Transfers) and can take advantage of todays economical EFT capabilities. There
EFT transactions through the automated clearing housing (ACH), are routine for companies, which
need to move cash nation wide for next day availability. They assure that the funds move where and
when needed with speed and accuracy.

CASH BUDGETING LEADS TO BETTER CASH MANAGEMENT

According to T.D.S Kabali, the cash budget is an important tool for efficiency managing cash. All
facets of a hospitals operation are examined so that cash receipt and disbursements for an upcoming
fiscal period may be forecast according to common financial activities.
Cash budget that follow the format suggested by Financial Accounting standards Board Statement
are useful for preparing a cash flow statement at a periods end by listing receipts and expenditures
according to operating, investing, and financing activities. An increase or decrease in the cash
position is shown in the budget. If unacceptable, this variance triggers action to secure additional
cash inflow (by speeding up receivables collection, selling investments, factoring receivables,
borrowing, and soon) or to reduce cash outflow (by reducing costs, foregoing investments, delaying
debt payoffs, and so on)
CASH FORECASTING-A ROUTINE FUNCTION
AR Williams suggested that cash forecast should be prepared systematically as apart of the routine
budgeting process. Because having adequate cash on hand at the proper time is important, monthly
budgets best monitor the situation. The 12 monthly budgets may be combined to provide quarterly
and annual forecasts. The monthly reports also may be broken into weekly forecasts if such detail is
desired. At the end of a budget period, the results for that interval may be compared with forecasts to
detect significant differences.

OBJECTIVE 1

CASH MANAGEMENT IN STRIDES ACRO LAB LTD

A proper cash management system will help the organization in smooth running
of its activities. As cash is lifeblood to every organization, it must be managed
properly so that any cash problem does not arise in the future.
Objectives of cash management in Strides Arcolab Ltd.

To study the efficiency of cash management in the organization.

To identify the operating cycle of the firm.

To meet the payment schedules of cash.

Cash management is one of the key areas of working capital management. Cash
is the common domination to which all current assets can be reduced because
the other current assets, receivables and inventory are eventually converted
into cash.
The stride has centralized management. The whole company has
managed by the top management. Centralization refers to the extent or degree
to which power and authority are retained at the top management levels and
decision making is concentrated at a single point in the organization.

Advantages of centralization

Easier coordination of activities of various departments or units and close

control of activities

Top mangers have better experience in making decisions

Top mangers have broader perspectives

Reduced duplication of effort and resources

Promoters strong relationship

Produces uniformity of policy and action

Decentralization refers to the extent or degree to which power and

authority are delegated to the lower levels of management.

Disadvantages of Decentralization
The decentralization has some disadvantages. They are

Major and significant decisions are not possible

There is no uniformity of policy and action

Lack of ability and experience for lower level mangers to make decisions

Difficult to coordination of activities of various departments or units

Close control of activities is a difficult task

duplication of effort and resources

If the company is going for the decentralization it will face many

problems. The centralization helps to the company to survival in the global
market.
Cash cycle in Strides Arcolab Ltd.
It is the process by which cash is used to purchase materials from which are produced goods, which
are then sold to customers, who later pay the bills. The firm receives cash from customers and the
cycle repeats itself. The cash management cycle is

Cash collection
Business operations

Information and
Control
Cash payments

Deficit

Borrow

Surplus

Invest

In the first step the company has to order the materials. After that it receives the materials
from suppliers and the company has to do some payments to its suppliers. After the process the
company will sell their finished products to its customers. The bank has to collects the cheque on
behalf of the company and deposits in the company account. So fund is collected in the company
account, this cycle is repeated itself. Sometimes the company has to do the payments after collecting
the debts or cash.
GOALS OF CASH MANAGEMENT
The primary goal of cash management of the company is the trade off between liquidity and
profitability in order to maximize long term profit. This is possible on the only when the firm aims at
optimizing the use of firms on the working capital pool. This over all objectives can be translated
into operational goals. The goals of cash management in strides Arcolab are as follows

To satisfy day- to- day business requirement

To provide for scheduled major payments

To face unexpected cash drains

To seize potential opportunities for profitable long term investment

To meet requirements of bank relationships

To earn cash balances

To minimize the operating cost of cash management

To build reservoir for net cash in flows till the availability of better uses of funds by
conscious planning.

OBJECTIVE 2
CLASSIFICATION OF VARIOUS EXPENSES
Without spending any money, no organization can able to generate any
revenue. Income and expenditure of any organization will depend on the type
and the size of the organization. Proper control over all the expenses will help
the organization to manage its cash in a proper manner.

To have planned and controlled expenditure, the organization must classify its
expenditure based on variability, around of expenditure, type of expenditure
etc. A schedule of future expenditure will help every organization to spend on
the requirements, within the limit of budgeted figure.
The study has found the various expenses those are spent by Strides Arcolab
Limited. The company has to classify its expenses or costs in two types. They
are

Personal cost

Operating costs and other expenses

The

Personal

cost

includes

the

salaries,

wages

and

allowances,

contribution to provident and other funds, staff welfare expenses, raw material
etc.
The operating expenses includes

other manufacturing expenses like

power, fuel, water, conversion charges, insurance etc, administrative expenses

like communication charges, rent, excise duty paid etc and selling and
distribution expenses like advertisement, commission on sale, traveling
expenses etc.
This study has found out several types of expenses. Then expenses are
grouped under six main headings. They are:

Materials

Manufacturing expenses

Administrative expenses

Selling and distribution expenses

Transport charges

Financial charges

OBJECTIVE 3
CASH BUDGET
The main objective of the cash budget is to achieve management objectives. It provides a detail plan
of action for reducing uncertainty and for the direction of individual and department.
It is the short-term cash forecasting and the principle tool of cash management. The firm prepares a
cash flow statement every month, which also contains the forecast of cash flow for future period.
The cash flow statement contains sales realization, operational payment, non-operational receipts and
payments and finally surplus/deficit for the month. It also helps to plan and control income and
expenses as to attain maximum profitability.
Cash budget is the most significant device to plan for and control cash receipt and payments. A cash
budget is a summary statement of the firms expected cash in flow and cash outflow over a projected
period. It gives information on the timing and magnitude period.

Calculation of minimum cash Balance required

Average debtors collection period = 179 days

Average Inventory Holding period = 128 days
Credit payment period = 139days
Annual expenditure = Rs 4510.34 million
Cash cycle = 179 days + 128 days 139 days
= 168 days
Cash turn over = 360 days/ 168days
= 2.17times
Minimum cash required = (4510.34 / 2.17)/ 12
= Rs173.21 million

Preparation of cash budget

The principal aim of cash budget, as a tool to predict cash flow over a given period of times there is
likely to be an excess of shortage of cash. Preparation of cash budget involves various steps. These
may be described as the element of cash budget system.
The first element of cash budget is the selection of period of time to be covered by the budget.
Alternatively, it is referred to as the planning horizon. The planning horizon means the time span
over which the cash flows are to be projected. There is notified rule. The coverage of cash budget
will differ from firm to firm depending up on its nature and the degrees of accuracy with witch
estates can be made. As a generated rules the permitted selected should be too long or too short. If it
is too largest is likely that the estimated will be inaccurate, if on the other hand the time span is too
small, many important events which that is just behind the period cannot be accounted for and the
work associated with the preparation of the budget becomes excessive.
The planning horizon of the cash budget should be determined in the light of the circumstance and
requirement of a particular case. For instance, if the flows are expected to be stable and dependable,
such a firm may prepare a cash budget covering long period, say a year and divide it in to quarterly
intervals. In the case of firm whose case are uncertain a quarterly budget, divided in to monthly
budget, sub divided on a weekly of even a daily basis may be necessary. The idea behind sub
dividing the budgeting period in to smaller intervals is to highlight. The movement of cash from
period to another the sub division will provide information on the fluactions in the cash reservoir
level during the time span covered by the budget.
The second element of cash budget is the selections of the factors that have begun are only cash
items. Non cash items such as depreciation are excluded. The factors that generate cash flow are
generally dividend for purpose of the construction of cash budget in to two broad categories. They
are

Operating budget

Financial budget

These two classification of cash budget items based of their nature. While the farmer categories
includes cash flow generated by operations of the firms and are know as operating cash flow, the
later consists of financial cash flows.

In this report a variable budget for a year has been prepared; while preparing the budget a debt
collection period is suggested. The suggested debt collection period is after 1 month and 2 months.
The table shows the cash budget for a year.
OBJECTIVE 4
TO MANAGE THE INVESTMENT OF SURPLUS CASH
The Table shows the way in which the firm can expect to have the surplus cash balance in the future
months. In the January-07, the company cannot expect any excess fund to invest in the marketable
securities; they have borrowed funds from the bank. In the next month they are repaying their loans,
after that in March the company can have fund to invest. These opportunities will continue in the
subsequent months as shown in the table. The table shows the investment of Securities.
From the table, it is clear that in the beginning months as the firm has less opportunity to invest, as
they have maintained the minimum cash balance.
From March-07, they have surplus cash balance; some part can be invested in marketable securities.
As cash balance reaches the upper limit the firm is advised to invest it in marketable securities, so
that they can bring the cash balance to optimum level.
The strides Arcolab Ltd is in a growing stage. It uses its most part of the cash are reinvested in its
business. The company is using surplus cash as a working capital and other activities of the business.
So the company is investing its some part of surplus cash in different securities.
The company is investing the surplus cash in every two months. Its investment is increasing every
month in the same amount. To fulfill the working capital needs and other activities the company is
using its surplus cash. It helps the company to reduce the borrowings and reduces the cost.
Motives of cash management
The term cash with reference to the cash management is used in two senses. In a narrow sense used
broadly to cover currency and generally accepted equivalents of cover currency and generally
accepted equivalence of cash such as cheques, drafts and demand deposits in banks. The main
characteristics of these that they can be readily fold end converted into cash.

There are four primary motives for maintaining cash balances. They are

Transaction motive

Precautionary motive

Speculative motive

Compensation motive

Transaction motive
An important reason for maintaining cash balances in the transaction motive. This refers to meet
requirements to finance the transaction which a firm carriers in the ordinary course of the business. A
firm which enters into a variety of transactions to accomplish its objective to be paid in the form of
cash. For E.g.: Cash payment is made for purchase, wages, operating expenses and financial charges,
taxes, dividends etc. Those times the company uses its surplus cash to meet the cash requirements.
Precautionary motive
In addition to the non synchronizations of anticipated cash in flows and out flows in the ordinary
course of business firm may have to pay cash for purchases, which cannot be predicted or
anticipated. The unexpected cash needs a short notice may be the results off.

Floods, strikes and failures of important customers

Bill may be presented for settlement earlier than expected.

Unexpected show down in collections of accounts receivable

Shop increase in cost of raw material

The cash balances held in the reserve for the random and unforeseen fluctuations in cash

flows are called precautionary balances. To face these problems the company investing its excess
cash in different marketable securities. Those times the company uses its surplus cash or reserved
cash to run the business.
Speculative motive

It refers to the desire of firm to take advantage of apprentices which present them selves at
unexpected movement and which are typically to outside the normal course of business. The
speculative else to take advantage of

An opportunity to purchase raw materials at a reduced price UN payment of

immediate cash

A chance to speculative on interest rate movements decline

Delayed purchase at favorable prices

Delayed purchase of raw materials on the anticipation of decline in prices.

So the company has to investing its surplus cash in different marketable securities and in the
unexpected movement it sells its marketable securities to meet the cash requirements.
Compensation motive
Yet another to hold cash balances compensates bonds for providing certain services and loans. Banks
provide a variety of services to business firms such as clearance of cheque supply, credit information
etc.
To confirm their services indirectly in this, they require to always keeping a bank sufficient to earn a
return equal to the cost of the services such balances are compensatory balances.
There are two types of marketable securities like long term marketable securities and short term
marketable securities.
The long term securities are those which have a maturity period of more than five years. The short
term securities are those which mature within a period of one year.
The long term marketable securities are

Money market mutual funds

Negotiable certificates of deposits

Government bonds

Shares
The short term marketable securities are

Commercial paper

Bankers acceptance

Bill of exchange

Purchase agreements

Treasury bills

Intercorporate deposits

units

Product and services of Private Banks

ICICI BANK
Collection Products
Local Cheque Collections
1- One of the largest network spanning over 488 locations.
2- Courier pick-up can be provided.
3- Process flow can be structured to suit the companys requirements.
Upcountry Cheque Collections
1- Coverage of over 3919 locations with tie-ups with correspondent banks
2- Capability to process cheques drawn on any location in India.
3- Assured credit given with funds pooled at any ICICI Bank location. Instrument level
tracking ofinstruments to ensure faster realization.

Cash Collections
1- Cash Collection from dealers and business associates on behalf of companies.
2- Cash pick-up facility in 28 locations.
3- Customized MIS for cash collection.

Payment Products
Anywhere Banking
1- Cheques issued payable at par at various ICICI Bank locations .
2- Single account to be operated at any ICICI Bank branch for this facility.
3- Ideal for small value, large volume payments.

Fund Transfers
1- Online transfer of funds between accounts maintained with any branch of ICICI Bank.

Issue of Bulk Demand Drafts/ Pay orders

1- Capability to issue Bulk Demand Drafts/Pay Orders on various ICICI Bank and
2345-

correspondentbank locations
Capability to accept online requests from the customers
Capability to print beneficiary advice and dispatch
Remote printing facility
Simple process with a low turnaround time and delivery .

Cheque Writing
12345-

Cheques can be issued on behalf of companies

Capability of processing large volumes of cheques in a short turnaround time
Capability of printing facsimile signatures
Capability to print beneficiary advice and dispatch
Ideal for bulk payments such as pension payments, gratuity payments.

At Par Payments
1- Services can be availed for the at par payment of dividend warrants /interest
warrants/ refundorder/redemption payments/brokerage payments
2- Simplified and streamlined procedures ensuring smooth process flow Online
validation ofinstruments before payment ? Regular reconciliation statements provided
by the bank
3- Covering over 100 major locations through own network (90%of the payments)
Arrangement with correspondent banks thereby covering over 200 locations through
instruments based payments
4- ECS credit facility at all available locations

HDFC BANK
Payment Services
HDFC Bank can structure a number of Payment products to suit the corporates needs.

Payable at par chequebook

This product enables the corporate to issue local cheques at all HDFC Bank branch locations
through one chequebook thereby eliminating the hassles of obtaining demand drafts or
opening current account at each location.

At par facility for statutory payments

HDFC Bank branch locations - cover over 80% of shareholders / beneficiaries for most of
their clients. Hence reconciliation, query resolution and pricing are superior.
In order to provide adequate coverage, HDFC Bank also provides 100 locations of their
correspondent bank. However, there is sustained reduction in dependence on correspondent
bank due to continuously increasing branch network.
The maximum limit on warrant can be mutually agreed upon - substantially reducing draft
costs and efforts. It also has Ability to meet the customers requirement of large number of
drafts in a short time at very competitive rates.
An At Par chequebook is provided on branch locations, after revalidation thereby eliminating
the need for Demand Drafts on branch locations.

Pay Quick
1- This product caters to the customers requirement of large volume of Demand
Drafts/Pay orders at over 1617 HDFC Bank and correspondent bank locations.
2- It provides the Option to forward data in soft copy form (floppy) in a secure
34567-

environment.
It gives Easy data transferability from the Corporate office to HDFC Bank.
Multiple payment instructions through one file.
Upload option for bulk issuance resulting in quick and error free delivery.
Payment instrument to include payment details.
Facility to mail to beneficiary directly. Also the committed courier turn around time
enables you to make payments as close as possible to the payment date - resulting in

additional cost savings.

8- Various value added MIS
9- One Stop dedicated Service Desk at our Centralized Cash Management Operations
Unit for prompt attention to your queries
10- Extensive coverage - over 500 locations.
11- Status of DD - paid / unpaid - can be provided on HDFC Bank location on a case-tocase basis.

Collection services
HDFC Banks Collection services are aimed at ensuring quick realization of local and
outstationcheques and providing the funds in a central collection account. This enables the
corporate to manage their funds flow position most effectively from a central location. This
service can be availed with/without a current account with HDFC Bank.

Local cheque collection

This product provides quick realization of local cheques deposited at the same location. This
product is available at all locations of HDFC Bank ("SPEED") and over 292 locations of their
correspondent Bank ("RAPID").

Outstation Cheque Collections

This product enables the customer to deposit outstation cheques drawn on any HDFC Bank
location at any HDFC Bank location ("SPRINT"). Similarly, cheques drawn on over 928
locations of their correspondent bank ("EXPRESS") can be deposited at any HDFC Bank
locations.

Transfer Cheque Collection

This product provides quick realization of local/outstation cheques drawn on any branch of
HDFC Bank Ltd. This product is available at all locations of HDFC Bank ("HDFCTRF")
locations.

Clean Collections
1- Cheques drawn on any locations, which are not covered, by HDFC Bank or
theircorrespondent bank are also collected at any of their locations and proceeds
credited toCustomers account as soon as credit is received by HDFC Bank.HDFC
2345678-

Bank's comprehensive MIS includes:

Daily report of deposits made at various locations.
Location wise report
Credit Forecast report
Monthly cumulative report - date wise / location wise.
Monthly charging statement.
Monthly cheques return statement.
Customized reports as per mutual agreement.

SUMMARY AND CONCLUSION

SUMMARY
This chapter, here the final summary about the company is given, the information about the trends in
the future is given.
This study was conducted to understand and analyze cash management of Strides Arcolab
Limited. The study was done for the period of 6 week. The study has covered the analysis of current
cash management, new cash budget for a year period, management of surplus funds in Strides
Arcolab Ltd.

The objectives of the study achieved through personal interview with managing partners using the
variable cash, budgeting method the cash budget for a year was prepared. Using Miller-Orr model
the optimum cash and the investment of excess cash is planned.
The study gives some important findings that the cash management system is not in a proper
condition. The main reason for the problem is improper debt collection, working capital
management.

Conclusions regarding cash management services

In todays competitive world the key differentiator between a successful bank and other bank
is the stress each lays on technology.

The above chart gives a clear explanation regarding the Cash Management infrastructure
provided by all the three sectors. The network, technology and the corporate relationship
services provided by all the three sectors are highly sophisticated and good but the scalability,
marketing provided by the Public sector is low in terms of the Private and MNC sector. As
well as the services provided by the public sector is not fairly good and up to the standard. As
Cash management is constantly changing to meet the needs of the corporate treasurer. The
challenge for both corporation and provider is to keep up with developments, technology,
changing regulations and fitting these in with normal business. A changing regulatory
environment, new technology and mergers that expand the scope of traditional banking are
redefining the traditional treasury management paradigm for both banks and corporations.

Electronic commerce is evolving far beyond simply ordering goods online or buyer-to
supplier commerce.
In a vast country like India Providing Cash Management Services do posses a challenge to
the Cash Manager as well as the banks. Considering the present Indian scenario, where
Cheques are the basic form of payment and cheque clearing takes a long time, cash
management services need to devise innovative methods and means to expedite the clearing
to benefit the corporate customer. As the Indian economy becoming an open market
economy, residents may maintain accounts in other countries and non-residents may hold
accounts in India. As a result, Indian treasurers may often find themselves managing cash
across geographies and time zones. In India the transaction types run from the classic paper
cheque to the latest Internet initiated electronic payment. Corporations initiate and receive
paper-based transactions, as well as high value and low value electronic transactions on a
daily basis. Expectations from new services may not eliminate or fully replace the older
traditional services. Change will be gradual but, probably, it will be firm. Fee structures for
cash management services in India vary from bank to bank and also from customer to
customer. Many banks price the services based upon the overall relationship, especially for
multiple product solutions. As Indian banks become more consultative and total solution
oriented rather than product-driven, pricing will become even more customized. Corporate
treasurers will consider the amount they can save on banking fees and the level of efficiency
in their departments as a sequel to the new cash management services. After they have
negotiated the best possible price, treasurers then focus on the return on excess balances.

SWOT Analysis of Competition in the CMS Market

The above Chart gives the explanation of the SWOT analysis and the competition in the cash
management services in the market. It tells about the products offered and the services it
provides.

Importance of Cash Management for a Corporate Entity

There is a need to put in place a specialized cash management system by Corporates. Good
Cash Management is a conscious process of knowing when, where, and how a companys
cash needs will occur; knowing what the best sources for meeting additional cash needs; and
being prepared to meet these needs when they occur by keeping good relationships with
bankers and other creditors. Cash management results in significant savings in time decrease
in interest costs, less paper work and greater accounting accuracy. Proper cash management
creates more control over time and funds; provides timely access to information; enables easy
employee related payments; supports electronic payments; produces faster electronic

reconciliation; allows for detection of bookkeeping errors; reduces the number of cheques
issued and earns interest income or reduces interest expense. Corporations with subsidiaries
worldwide can pool everything internationally so that the company can offset the debts with
the surplus monies from various subsidiaries. The end result will transform treasury function
as a profit-centre by optimizing cash and put it to good use. Creative and pro-active cash
management solutions can contribute dramatically to a companys profitability and to its
competitive edge. The ultimate purpose of proper management of liquidity, needless to
emphasize, is to improve the overall productivity of funds.

How Corporate Select a Bank for Sourcing Cash Management

Services?
Probably, it is important to consider what the companies expect from their bankers in this
regard. It is normally the client-bank relationship, which is a main consideration in choosing
a bank for cash management. Pricing, obviously, is a very dominant factor. Making a choice
between the local banks and the more highly priced foreign banks usually depends on how
cost savings are presented by the banks. Multinational corporate with complex treasury
operations admire their respective banks expertise and ability to offer creative solutions.
There are some common requirements related to basic cash management systems. Flexibility,
reliability, security and stability have been cited as vital parameters for any electronic
banking system. The systems should be tailored to provide pertinent reports and the ability to
upgrade easily in future. The technology should allow real-time cash management with
strategic banking partners. It should integrate easily with legal framework in place. It should
lower operating costs and resolve disputes quickly by providing secure and legally
enforceable audit trails. It should be capable of reducing risk of fraud in electronic funds
transfers and other treasury activities. It should also be able to use a low-cost public network
infrastructure like Internet, which eliminates the need for dedicated leased lines.
For instance, availability of requisite bandwidth for Internet connection is still a problem
faced by various financial institutions. With a highly technology savvy there are several
exciting new opportunities for both user and provider in the cash management arena. Cash
management worldwide is constantly evolving to meet the needs of the corporate treasurer,
take advantage of new technology and support customers as they move into new markets.
The challenge for both company and service provider is to keep up with developments in
technology and changing regulations and espouse them to their normal business. The key to

success will be active partnerships between corporations and their providers as no one will be
able to keep up with all developments on their own.
Because of the mounting importance of fee-based financial services, all banks need to
finetune their strategies, if they want to harness the potential in this area. They need to
appreciate the dynamics of the new fee-based market, which is driven by the growth of the
Internet and inter-connect applications.
But it wont be easy for all banks to capture their share and profit of the swiftly expanding
fee-based market. Taking advantage of the opportunities and avoiding the threats of
unprofitable products, insufficient customer service, and diverse IT applications entails an
understanding of the market place, the needs and expectations of the customer and of course
the competition. It is an important point to note that offering fee-based services is no longer a
choice today to the beleaguered banker. It is a desirable compulsion to thrive. Managing cash
in the emerging milieu will require a new mind-set of banker and his client.

BIBLIOGRAPHY
Internet:Websites
1- www.google.com
2- www.wikipedia.org/

3- http://wiki.answers.com

4- http://www.slideshare.net

5- www.wikipedia.org/inventory

6- www.pdfsearchengine.com/cashmanagement

7- www.scribd.com

Books:

1- Introduction to operation Research By HamdyA.Taha

2- Introduction of operation Research By J.K.Sharma

3- Learning operation Research By S.K Jaiswal