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Working Capital Management at Kirloskar Pneumatics Co. Ltd. by Rajesh Menon

Working Capital Management at Kirloskar Pneumatics Co. Ltd. by Rajesh Menon

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Published by: Bandya Berozgaar on Jan 18, 2012
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01/18/2012

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Cash needs can be determined though preparing cash budget, for year,

month, week etc.

46

Cash reports, providing a comparison of actual development with forecast

figures, are helpful in controlling and revising cash forecasts on a continual

basis The important cash reports are

The daily cash reports

Daily treasury reports

The monthly cash report

Monitoring collection and receivables:

The Finance Manager must control the levels of cash balance at various

points in the organization. This task assumes special importance on

account of the fact that there is generally tendency amongst divisional

manager to keep cash balance in excess of their needs. Hence a finance

manager must devise a system whereby each division of organization

retains enough cash to meet its day-to-day requirements without having

surplus balance on hand. For this methods have to be employed to:

Speed up the mailing time of payment from customers

Reduce the time during which payments received by the firm remain

uncollected and speed up the movement funds to disbursement banks.

For this purpose following can be helpful:

1 Prompt billing often there is time lag between the disptachof goods

or provision of service and the sending of bills. By preparing and

sending the bills promptely, a firm can esure earlier remittance. It

should be realized that it is in the area of billing that the company

control is high and there is a sizeable opporltunity to free up cash.

For this treasure should work with controller and others in :

Accelerating invoice data

Mailing bills promptly

Identifying payment locations.

2 Expeditious collection of cheques - expediting collecgion of cheques

is important and there are to methods 1. Concentration banking, 2.

Lock box method

47

Concentration banking : (decentralized collection) key

elements are,The major bank account of the company is wet

up with a concentration bank, generally situated in the same

place where the company is head quartered. Customers are

advised to mail their remittances to collection centre close tgo

them. Payments collected in different collection centres are

deposited in local banks which in turn transfer them to the

concentration banks

Lock box method: Silent features are as follows

A number of post office boxes are rented by the company

in different locations.l

Customersare advised to mail there remittances to the

lock boxes.

Banks are authosized to picked up the cheques from the

lock boxes and depositthem in the companies account.

Controlling payables/disbursements: by proper control of

payables company can manage cash resources. This involves

Payment should be made as and when it fall due.

Centralized disbursement payables and their

disbursements may be centralized. This helps in

consolidating the funds at head office scheduling

payments, reducing unproductive bank balance and

investing surplus funds more effectively.

Proper synchronization of inflows and outflows helps a

company to get greater mileage from cash resources.

Float: when firm issues cheques they reduce the balance in

their books, but balance in banks book is not reduced till the

payment is made by bank. This amount of cheques issued by

the firm but not paid for by the bank is referred to as payment

48

float. When the cheques are deposited with bank the firm

increases the balance in its books. The balance in the banks

book however is cleared. The amount of cheques deposited

by the firm in the bank but not cleared is referred to as

collection float. Difference between payment float and

collection float is called as net float. When the net float is

positive the balance in the books of bank is higher than the

balance in the books of firm. When the firm enjoys the positive

float (net) it may issue cheques even if it have an overdrawn

bank account in its books. Such an action is referred to as

playing the float It is considered risky.

Accruals: accruals can be defined as current liabilities that

represent a service or goods received by a firm but not yet

paid for. For example remuneration to employees that render

services in advance and receive payment later. In a way, they

extend credit to the firm for a period at the end of which they

are paid. Weekly is more important as compared to monthly.

Other examples, rent to lessors, taxes to government.

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