Question

What strategies can be employed to keep a constant cash balance? Suppose a corporation had as one objective maintaining its present level of cash. As the company grows and operates, what operational and financial strategies might follow or become necessary? What changes might have to be made? I am not speaking of cash management techniques per se (cash sweeps, commercial paper, etc) but company strategy being influenced by adopted financial policies.

Answer 1

If a company is following maintaining a present level of cash every time as its objective, than it becomes necessary to maintain such cash at the specified level. One can adopt the following strategies to maintain specified level of cash:

· To set a specified limit in accounting system where if the cash reduced to specified limit will automatically block the entry and the transaction will not be processed.

· To conduct a independent physical verification of cash any time during the month so as to verify whether the policy is actually followed or not.

Operational and Financial Strategies to be follow/made:

· As the company grows, it is necessary to not hold a large amount of cash in hand otherwise it will incur opportunity finance cost.

· It is also important to follow policies in relation to cash management personnel i.e. Collection and entry of cash not to be handled by single person otherwise it will lead to teeming and lading.

· Strategies pertaining to treasury management also need to set attention. So that no opportunity cost would incur.

· It would become necessary to conduct independent physical verification of the cash as the company will also generates higher cash.

· Strategy in relation proper Standard Operating Procedures(SOP) in relation to be cash should be modified/created and to be implemented across the levels of management.