Good cash management practice is the lifeblood of the business in today’s uncertain economy with ever-rising interest rates. Therefore, the cash collection strategy should often be reviewed to enhance the organization’s main cash collection sources. According to Bragg (2005), a periodic review of the company’s policy on cash should be carried out to determine when it should be changed to march prevailing economic conditions. BluJay Aviation has a pay policy that allows its clients to pay 30 days later after providing services to them. This is a long period and can lead to slow movement of remittance from dispersed locations to central management thus resulting in build-up or lazy cash balances.
Ways of Managing Cash
There are various options that a company can use to efficiently manage its cash.
According to Plewa and Friedblo (1995), accelerating cash receipts and concentrating funds is one of the options that can lead to the effective management of cash. This involves speeding up the billing and collection process to move cash into the company’s account so that it can be used effectively. Besley and Brigham (2005) further point out that companies should try to march their cash inflows and cash outflows. Having synchronized cash flows can enable BluJay Aviation to reduce the time lag it takes to have the cash thus lowering interest expenses while boosting profits. BluJay Aviation can plan and delay disbursements of cash. This will enable the company to gain the objective of maximum use of cash consistent with its goals and to have cash when required (Plewa and Friedblo, 1995). Three methods that BluJay can use to control cash disbursements according to Besley and Brigham (2005) include the following: payables concentration, zero-balance accounts and controlled disbursement accounts.
BluJay Aviation can equally develop measures to monitor the cash flow system to ensure that it is operating as designed so that it can meet its goals. Forecasting cash inflows and outflows is another method as pointed out by (Plewa and Friedblo, 1995).
BluJay can use adequate cash forecasting systems in order to coordinate the cash inflows and outflows from the providers and users of cash throughout the company. This will enable it to know its cash position and make a decision on expenditures based on the available cash. BluJay can also design and develop effective procedures for reporting daily cash to make it easy to determine and monitor the company’s cash position.
Two options that BluJay might try to improve its cash flows
Forecasting the cash inflow and outflow can enable the company to control expenditures against available cash. It can also try accelerating cash receipts and concentrating funds since this can reduce the time taken to acquire cash thus enabling it to obtain the cash within a shorter period.
Advice on evaluation of accounts receivable
BluJay Aviation should accelerate the collection of customers’ payments and conversion of those payments into cash. when taking actions to speed up the collection of receivables, the firm should be careful to maintain good relations with its customers that is; it should take actions without harming the returns associated with the management of these accounts (Besley and Brigham, 2005).
In conclusion, cash management practice should aim at reducing the time between when the debtor initiates the payment and when funds become available for use.
Besley, Scott. & Brigham, Eugene. (2005). Essentials of managerial finance. 13th ed. Ohio, USA: South- western.
Bragg, Steven. (2005). Billing and collections: best practices. New York, USA: John Wiley & Sons, Inc.
Plewa, Frankline. & Friedlob, Thomas. (1995). Understanding cash flow. New York, USA: John Wiley & Sons, Inc.