Importance of Cash Management
Whether it’s an individual or company cash management importance cannot be ignored. Cash management in simple words refers to managing the cash in such a way that a company never falls short of cash when it is in need. Let’s look at the reasons due to which cash management is important for a company –
1 Cash management is particularly important for those companies who make sales as we as purchase on credit, since creditor can demand money anytime and therefore it is important for a company to manage cash.
2. Cash management is also necessary to deal with contingencies such as fire, breakdown of machinery, payment of compensation in case of any lawsuit going against the company etc…
3. In this dynamic business world there is always a scope of takeover that is company can buy other company if it thinks that it is undervalued, cash will play a key role for successful takeover.
4. Since global commodity prices are fluctuating companies need cash in order to take advantage of decline in the raw material prices of the company’s product.
5. Cash management assumes greater importance when company has taken debt, because interest payments are fixed and company has to pay it, any delay in interest payment or principal repayment of dent can even result in company becoming bankrupt, therefore cash should be there for payment of such expense.