QUESTION 4 15 MARKS Explain how the principles of cash manag

QUESTION 4 (15 MARKS) Explain how the principles of cash management can assist in the following case studies: I) Joe allows customers to pay their accounts when they want to; 2) Marie pays her invoices/bills as soon as they arrive; ob has so much inventory on hand that he has no space left in his warehouse Ivan has $1,000,000 in the bank, which is surplus to his business needs. 4)

Solution

1. Principle of cash management says to minimize the collection period and speed up collection on receivables, with proper timeline of cash recievables, Joe can plan his purchases also and save on interest costs.

2. Marie should not hurry on paying his invoices and wait till the last 2 3 days of the grace period. However, undue delays which leads to paying out extra cost in form of penalty or interest must be strictly avoided.

3. Another principle of cash management keep inventory at low level propotionates to study of economic order quantity which states that inventory should be purchased as per the economic needs and should not be purchased unnecesarily. These block our cash as we have to pay lump sum cash

4. Any surplus should be invested in the form which can be redeemed in the future when required easily. Investing in liquid funds can help in earning interest on ideal funds and also manage cash. Excessive cash can also lead to unnecessary expenses