Cash management services in india is a broad area having to do with the collection, concentration, and disbursement of cash including measuring the level of liquidity, managing the cash balance, and short-term investments.
If at any time, because of a lack of cash, a corporation fails to pay an obligation when it is due, the corporation is insolvent. Insolvency is the primary reason firms go bankrupt. Obviously, the prospect of such dire consequence compels companies to manage their cash with care. Moreover, efficient cash management services in india means more than just preventing bankruptcy. It improves the profitability and reduces the risk the firm is exposed to.
Cash collection systems aim to reduce the time it takes to collect the cash that is owed to the firm (for example, from its customers). The time delays are categorized as mail float, processing float, and bank float. Obviously, an envelope mailed by a customer containing payment to a supplier firm does not arrive at its destination instantly. Likewise, the moment the firm receives payment it is not deposited in its bank account. And finally, when the payment is deposited in the bank account oftentimes the bank does not give immediate availability to the funds. These three “floats” are time delays that add up quickly, requiring the firm in the meantime to find cash elsewhere to pay its bills. Cash management services in india attempts to decrease the time delays in collection at the lowest cost. A collection receipt point closer to the customer, such as a lock box, with an outside third-party vendor to receive, process, and deposit the payment (check) will speed up the collection. For example, if a firm collects $10 million each day and can permanently speed up collections by five days, at 6 percent interest rates, then annual before-tax profits would increase by $3 million. The techniques to analyze this case would utilize data involving where the customers were; how much and how often they pay; the bank they remit checks from; the collection sites the firm has (their own or a third-party vendor); the costs of processing payments; the time delays involved for mail, processing, and banking; and the prevailing interest rate that can be earned on excess funds.
Once the money has been collected, most firms then proceed to concentrate the cash into one center. The rationale for such a move is to have complete control of the cash and to provide greater investment opportunities with larger sums of money available as surplus. There are numerous mechanisms that can be employed to concentrate the cash, such as wire transfers, automated clearinghouse transfers, and checks. The tradeoff is between cost and time.
Disbursement is the opposite of collection. Here, the firm strives to slow down payments. It wants to increase mail delays and bank delays, and it has no control over processing delay.