Working Cash Management

6 Pages 1418 Words

Working capital is very important for all departments in a company. “Accounting is
frequently responsible for payable and receivable; operations is in charge of inventory; and
finance handles cash management. Marketing also plays a key role because sales forecasts
are a key determinant of working capital needs” (Jordan,2001,p.477). Working capital
basically deals with a firm’s short-term assets and liabilities. “It refers to the amount of
capital which is readily available to an organization. That is, working capital is the
difference between resources in cash or readily convertible into cash (current assets) and
organizational commitments for which cash will soon be required (current liabilities)”
(Treasury, 2002). If a company operates with more working capital than necessary, there
are problems within operations. The objective is to maintain a balance within the entities of
working capital management. The overstatement of working capital could be used for
investment purposes instead of accumulating in bank deposits. The balancing of working
capital management occurs with the understanding of float management, inventory
management, and cash management.
Float is basically the difference in a company’s book balance and available balance.
It represents that time period of clearing a check. The balance on the check register (book
balance) is automatically deducted when a check is written, while the financial institution
(available balance) remains constant until the check has cleared the account. “properly
managing float can significantly impact a bank’s funding requirements and over
profitability” (Glassman, 2002). Disbursement and collection float are the two types of
floats. Disbursement float occurs as checks are written by a company, causing a decrease in
the book balance and no change in the available balance. On the other hand, checks
received by a company generates collection...