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What is Cash Management System? What is advantages of using
CMS Facility?
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Answer Posted / neha chawla
Cash Management services is a new entrant in the Indian
Banking Scenario. Cash Management Services (CMS) is a
mechanism to efficiently manage cash flow in order to
reduce risks, minimize costs and maximize profits.
Generally Cash Management comprises integrated collection,
payments, liquidity management, and receivables functions.
Speedy collection of outstation instruments is one of the
major products under CMS.
CMS offers customised collection and payment services,
which allow companies to reduce the realisation time of
cheques and streamline their cash flows. As the companies
get access to their funds faster, the need for companies to
borrow cash comes down, and lowers their interest payout.
In return, the banks charge the companies a fee based on
the volume of the transaction, the location of the cheque
collection centre and speed of delivery. Some banks even
buy the cheques and pay the corporates immediately,
charging an interest fee for the number of days it takes
them to encash the cheques. Since CMS allows companies to
track their cash flows on a daily basis, financial
decisions happen faster and more efficiently.
Need of CMS
Managing liquidity is complex, as cash is volatile. For a
business spread across various locations, managing
outstation fund-collections and disbursements can often be
a time-consuming, expensive and exasperating proposition.
Delays of days or even weeks in realising outstation
cheques, constant tracking and follow-up to transfer funds
from outstation collection accounts, uncertainty and delays
regarding information on the fate of the cheque is common.
These affect the company's liquidity position and it has to
bear a higher interest cost. A remedy to this hazard surely
is the practice of cash management.
Business entities with large network of branches, sales
outlets often have client base with wide geographic
spread. Getting receivables through cheques, drafts and
other clearing instruments into their possession itself
consumes considerable time. Besides, often they find it
difficult to have access to funds at the required time
since banks pass on the credit only on realisation.
Corporate are not certain of the time lag to get the
instruments collected through normal channel of banks and
get the funds credited to their accounts which hinders the
treasury management portfolio and strain their liquidity
and profitability. Cash Management offers guaranteed
credit and timely MIS.
CMS brings predictability of cash flows and helps in
liquidity management." Sectors such as telecom, utility
services, mutual funds and insurance companies benefit most
from it because they can pool their receipts from different
locations in different forms (online, cheques, ECS and
credit cards) in a seamless manner.
| Is This Answer Correct ? | 83 Yes | 14 No |
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