CASH MANAGEMENT implies that all the business generated revenues are effectively controlled and utilized in the best possible manner to result in gains for the organization.


To ensure availability of cash as per payment schedule And To minimize the amount of idle cash .


‡ Operational cash flows ‡ Priority cash flows ‡ Discretionary cash flows ‡ Financial cash flows .


‡ Transaction motive ‡ Precautionary motive ‡ Speculative motive ‡ Future requirements ‡ Compensating balances .


Cost involved in cash management system like any other system can be broadly divided in to fixed cost and variable costs.Since the basic purpose of any cash management system is to reduce the cost. fixed employee cost . Fixed costs of maintaining any system may be like depreciation on hardware used.

the variable cost of cash management system normally depends on the volume of funds handled by the company .etc.


. it has 2 concepts quantitative as well as qualitative. the obligations that are due. It refers ability to pay in cash. quantitative includes the quantum. structure and utilization of liquid assets where as qualitative concept is the ability to meet all the present and potential demands on cash in manner that minimizes cost and maximizes the value of the firm.LIQUIDITY is defined as the ability of the organization to realize value in money. the most liquid of assets.

REASONS FOR CASH SURPLUS ‡ Profitability from operations ‡ Low capital expenditure ‡ Absence of profitable avenues of investment ‡ Sale of a part of a business ‡ Raising of funds from issue of stock and bonds for long term capital projects. temporary funds is not used ‡ Conservative dividend distribution policy .

REASONS FOR CASH FLOW PROBLEMS ‡ ‡ ‡ ‡ ‡ ‡ ‡ Continuous operation losses Higher inflation rate Non recurring expenditures Higher seasonal or cyclical sales Over trading Continuous growth of business Inefficient working capital management .


Miller-Orr cash management model .

The Miller and Orr model of cash management is one of the various cash management models in operation. As per the Miller and Orr model of cash management the companies let their cash balance move within two limits .the upper limit and the lower limit . It helps the present day companies to manage their cash while taking into consideration the fluctuations in daily cash flow. It is an important cash management model as well.

The companies buy or sell the marketable securities only if the cash balance is equal to any one of these when the cash balances pf a company touches the upper limit it purchases a certain number of salable securities that helps them to come back to the desired level. It is normally assumed in such cases that the average value of the distribution of net cash flows is zero. It is also understood that the distribution of net cash flows has a standard deviation. The Miller and Orr model of cash management also assumes that distribution of cash flow is normal . If the cash balance of the company reaches the lower level then the company trades its salable securities and gathers enough cash to fix the problem.

Application of Miller and Orr Model of Cash Management The Miller and Orr model of cash management is widely used by most business entities. in order for it applied properly the financial manages need to make sure that the following procedures are followed: ‡ Finding out the approximate prices at which the salable securities could be sold or bought ‡ Deciding the minimum possible levels of desired cash balance ‡ Checking the rate of interest ‡ Calculating the SD (Standard Deviation) of regular . However.


They also strive to spend less money on changing marketable securities to cash. The Baumol model of cash management is useful in this regard. Relevance At present many companies make an effort to reduce the costs incurred by owning cash. It is extensively used and highly useful for the purpose of cash management. Use of Baumol Model The Baumol model enables companies to find out their desirable level of cash balance under certainty.‡ Baumol Model of Cash Management The Baumol model of cash management is one of many by which cash is managed by companies. .

all such deals have variable costs and fixed costs. ‡ The company is capable of predicting its cash necessities ‡ They should be able to do this with a level of certainty ‡ The company should also get a fixed amount of money. keeping the cost of transaction the same. They should be getting this money at regular intervals. .Assumptions There are certain assumptions or ideas that are critical with respect to the Baumol model of cash management The particular company should be able to change the securities that they own into cash. ‡ Under normal circumstances.

It should stay the same for a considerable length of time. In other words. ‡ The company should be making its cash payments at a consistent rate over a certain period of time. .‡ The company is aware of the opportunity cost required for holding cash. the rate of cash outflow should be regular.


‡ Setting cash balance ‡ Cash cycle ‡ Zero balance account ‡ Money market banking ‡ Petty cash imprest system .


It incorporates many ‡ a) Operationally efficient features ‡ b) Customer information features ‡ c) Monitoring and reporting systems for the bank etc. particularly its corporate customers. The product and architecture are well proven and have matured with considerable user feed back. .Introduction ‡ Datanet's CMS system is a fast collection system which enables the bank to offer a powerful new service to its customers.

in which the customers (of the bank) have their accounts ‡ b) Collection Centers are branches where cheques are presented in favor of BB customers ‡ c) HUB(s) which essentially store the float fund data and ‡ d) Head Office where IBR reporting. .‡ The system architecture and functioning is as follows: There are essentially four organizational entities involved: ‡ a) The Base Branch. data mart etc are built. That is. Moreover. a branch can be configured to have dual roles. a branch can be a base branch as well as a collection center.

It supports four types of customers . ‡ The system is highly automated and is fully electronic avoiding paper movement completely. Overall. ‡ Whereas most of the CMS systems deploy a single HUB. ‡ Several flexible charging schemes are supported. correspondent bank and non-customer.Distinguishing features of Datanet's CMS ‡ It is completely workflow automation based and hence the business processes are accurately and neatly modeled in the system.this branch. . the network is configured as a star for communication purposes thus making it possible to communicate to any unit in a max of two hops. this system can support multiple HUBs. other branch.

viewing of account statuses is enabled on the browser / server model. ‡ Transactions are conducted on this WAN with complete security by using RSA PKI based. which is an integral part of the workflow automation platform BPRO. an alternate HUB can be built at a different geographical location. making it possible for the customer to readily and remotely access his information. The bank will have its own Key Certification unit also as this is a closed user group network. . ‡ Both for the customer and for float fund managers.For recovery from failure of any one HUB.

and time consuming task. But this product implements a unique on-line IBR scheme which reconciles the transactions as they occur and hence completely eliminates the need for human intervention in reconciliation. thus providing a database for electronic auditing and monitoring. . ‡ Traditionally such inter-branch transactions result in the burden of Inter Branch Reconciliation.‡ The workflow automation platform has built-in capability to log all the states of every transaction occurring on the system. which is a huge.

The credits stay at the HUB for the specified duration as float fund. The customer can choose to mark the collection into various baskets. Provision for receiving cheques from feeder branch of the Collection Branch is also available. The customer can choose float delay based on funded date or cheque lodged date. If on the basis of lodged date. ‡ Credit by Clearing: Normally cheques are presented by the representatives of the customer at the collection centers. Provision for re-presented cheques is available. .Transactions and their key features ‡ Registration of customers: The registration of customers can be done from the Base Branches as well as the Head Office. then the bank can set an exposure limit for the customer. Four customer types are supported.

reversal can be sent. CC.‡ Reversal of Credit: If a cheque bounces. Data is entered about these instruments at this center and electronically transmitted to the actual collection center. ‡ Data Entry and cheque forwarding: Cheques drawn on a collection center can be submitted at another center. Some of them are - . Can be used to reverse credits due to any other internal reasons also. ‡ Reports: A wide range of reports are available at the BB. HUB and the HO.

These are of type . region based.‡ Datamart: A datamart can be built at the HO by consolidating all the transaction data and analyses of different have been built. . system performance based etc.customer based. ‡ Back-up and garbage clearance: The system automatically backs-up the databases at regular intervals which is automatically moved / can be moved onto a secondary backup device. branch based.

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