The basic strategies that should be employed by the business firm in managing its cash are:

 i)         To pay account payables as late as possible without damaging the firm’s credit rating. The firm should however take advantage of any favourable cash discounts offered.

ii)         Turnover inventory as quickly as possible, but avoid stockouts which might result in loss of sales or shutting down the ‘production line’.

iii)        Collect accounts receivable as quickly as possible without losing future sales because of high pressure collection techniques. The firm may use cash discounts to accomplish this objective.

 In addition to the above strategies the firm should ensure that customer payments are converted into    spendable form as quickly as possible. This may be done either through:

a) Concentration Banking

b) Lock-box system.

 a) Concentration Banking

Firms with regional sales outlets can designate certain of these as regional collection centre. Customers within these areas are required to remit their payments to these sales offices, which deposit these receipts in local banks. Funds in the local bank account in excess of a specified limit are then transferred (by wire) to the firms major or concentration bank.

Concentration banking reduces the amount of time that elapses between the customer’s mailing of a payment and the firm’s receipt of such payment.

 b) Lock-box system.

            In a lock-box system, the customer sends the payments to a post office box. The post office box is emptied by the firm’s bank at least once or twice each business day. The bank opens the payment envelope, deposits the cheques in the firm’s account and sends a deposit slip indicating the payment received to the firm. This system reduces the customer’s mailing time and the time it takes to process the cheques received.