Manage cash flows

Organizations can manage cash flows by speedy collection and efficient disbursement of cash. Once these two             factors are efficiently managed, a organization can estimate an optimum level of cash balance.

• Speedy cash collection system: Customers should be encouraged to pay as quickly as possible so that the payments can be converted into cash. Organizations must ensure that the cheques given by customers must be en-cashed promptly. This system can be followed by adopting the below techniques:
•  Establishing Collection Centres: Under this technique, large organizations having many branches, select some branches for the purpose of receiving payments from the customers. These branches are termed as collection centres, where customers are encouraged to send their cheques or demand drafts to these collection centres. The collection centres then deposit all these collections into a local bank account. Through this method organizations can have an accelerated collection system.
•  Lock Box System: Under this system, organizations select few collection centres for receiving payments for which bank accounts are created. Customers are encouraged to send the payments directly to these banks where a drop box is kept. The bank clears the cheques and deposits all the money to the organization account for disbursements.
•  Slow Disbursements: Organizations must try to clear all its payment as late as possible without damaging its goodwill. Organizations must aim to clear all the payments just before the due payment period so that they may enjoy cash discounts. Below are few techniques for slow cash disbursements.
•  Centralized Disbursement: Under this system, payments are to be made by the head office through a centralized account. Through this method, organizations can make payments to those creditors whose due dates are closing.
•  Avoidance of early remittances: Under this method, organizations must adopt a policy to ensure that the payments towards the creditors are to be remitted only on or before due date.
•  Float: Organizations can take advantage of the time gap when a cheque is issued to the creditor and the clearing of that cheque. Through this method organizations can pay the creditor through cheque even though there is not sufficient cash balance in the bank. Taking advantage of the time gap for the cheque to be presented by the creditor, until then organizations can deposit money.
•  Accruals: Under this method, organizations must make payments only when it incurs it. For instance, wages paid to the foremen, organizations pay the wages only after those services are rendered.

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