Question

There are a number of strategies that can be used to retain or increase cash on hand. Some legal and some illegal. Illegally you can retain or increase cash by not reporting how much cash you actually made. However, that would land you in jail. Legally, one way to retain cash is to pay for items on credit therefore leaving cash to be used for more pressing matters. To increase cash one strategy is to pay your bills on time or before time as to not incur late charges. And some bills give you a discount for paying early. In the case of credit cards, if you pay before the bill you will be reported more favorably and it makes it easier to borrow in the future.

Personally I pay my bills early to ensure I do not receive a late charge and I also use my credit card for small items that I can pay off before the end of the month so I have more cash on hand if needed. How this would help business is giving them more cash at the beginning of the month to pay bills and payroll why they collect cash from sells.

Post 2 replies to classmates or your faculty member. Be constructive and professional.

Answer 1

a) Even highly profitable firms may face cash crunches. The strategy to solve this problem may be to offer cash discount to customers who may pay on time to get benefit of discount. Even technology should be used for receipt of dues through electronic mode. The company can also negotiate for better terms from the vendors to even out the cash flows during the year. The other strategy many include, leasing rather than buying. Manufacturing units may need costly machinery, the payment of which many affect some cash balance negatively. Leasing here is proved as a better method so that cash flows are somoothened. The business can also send invoices on time to avoid late payments from customers. Try to be clear and concise with invoices to avoid ambuiguity.

b) The other method to solve cash problem is getting rid of slow moving inventory and obsolete machinery. Such blocked inventory and obsolete machinery many consume your warehouse space and factory space respectively consuming maintenance and carrying cost. So, despite loving such old inventory and machine, being practical and selling it off is the best solution. It will generate some cash flow and save on the cash flow incurred to maintain such inventory and machine. The business can also have tie up with collection agencies to collect old account receivables. This will help them to collect cash from customers who have not paid since long.

A business has many legal way to maintain cash balance in its balance sheet so that the liquidity in the business is maintained.