In: Finance
Cash management to avoid conflicts:
The purpose of cash management is to ensure that the company has the cash at the right time to meet the requirements.
There may arise potential conflicts between the shareholders and the managers on cash holdings which benefit either the former or the latter. This type of conflict not only effects the cash management but also the governance. His can be solved through company’s financial policies.
This means pursuing a joint interest that provides greater value to both the parties by reducing the transaction costs and the risks.
In order to establish a mutual cash holding relationship, there must be two factors taken into account.
It is good to take the first step as it is easier to implement which has more power and lesser costs.
The solution to this conflict is coercion. The next solution is negotiation where the stakeholders can mutually agree on the payment date with the company. The final and the last solution is unilateral concession, where the company finances the customer by billing him once in six months, whether it involves coercion, negotiation or the third option, it takes into account the stakeholder’s management. The stakeholder’s management must also take into account the manager’s cash holdings, to arrive at a solution that is beneficial to both. Though this type of approach is difficult practically, it is started to get implemented in many places using new technologies and joint invoice management. The implementation of such techniques can lead to mutual cash holding.