Working Capital Management

CHAPTER 3 Cash—Management and Fraud Prevention

This chapter covers these topics:

• Understanding the significant components of cash.
• Appreciation of the bank products useful in managing paper and electronic forms of cash.
• Determination of how to reduce float and processing costs associated with cash.
• Consideration of various techniques of managing the risk of theft and fraud affecting cash.
• Reviewing the application of cost management to an actual cash collection cycle.

CASH INCLUDES ANY GENERALLY ACCEPTED form of payment, including coin and currency, checks, and the electronic mechanisms of Fedwire and ACH. In this chapter we focus on these cash transaction forms, as they are in the widest use in business. The use of cash to complete business transactions is the obvious essential element in operating any company. We expect to be paid in cash or its equivalent when we sell our goods and services, and we know our employees and vendors will only accept similar methods of compensation when we pay our bills.

FORMS OF CASH

There are three forms of cash, each of which has to be proactively managed to attain the optimal working capital position:

1. Bank cash, or cash in the process of collection or disbursement (which we referred to as float in Chapter 1).
2. Cash to which access has been arranged through a bank line of credit, accessible whenever a shortfall of cash from operations is forecast.
3. Cash invested in short-term investments in order to earn a return, but which can be quickly ...