Excess Cash Balance Costs

The cost of having excessively large cash balances is known as the excess cash balance cost. If large funds are idle, ‘the implication is that the rum has missed opportunities to-Invest those funds and has thereby lost interest which it would otherwise have eamed. This loss of interest is primarily the excess cost.

Procurement and Management

These are the costs associated with establishing and operating cash management staff and activities. They are generally fixed and are mainly accounted for by salary, storage, handling of securities, and so on.

Uncertainty and Cash Management

Finally, the impact of uncertainty on cash management strategy is also relevant as cash flows cannot be predicted with complete accuracy. The first requirement is a precautionary cushion to cope with singularities in cash flows, unexpected delays in collections and disbursements, defaults and unexpected cash needs. The impact of uncertainty on cash management gin, however, be mitigated through (j) improved forecasting of tax payments, capital expenditure, dividends, and so on; and (ii) increased ability to borrow through overdraft facility.

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