Cash Management Services and its Importance

Cash Management Services and its Importance: Jaiib Paper 1 (Module B) Unit- 8

Dear bankers,

As we all know that  is Cash Management Services and its Importance for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Cash Management Services and its Importance (Unit-8), FUNCTIONS OF BANKS (Module B), Principle & Practice of Banking JAIIB Paper-1.


♦Important of Cash Management

  • Just like a ‘no cash situation’ in our day to day lives can be a nightmare, for a business it can be devastating.  Especially for small businesses, it can lead to a point of no return. It affects the credibility of the business and can lead to them shutting down.  Hence, the most important task for business managers is to manage cash.
  • Management needs to ensure that there is adequate cash to meet the current obligations while making sure that there are no idle funds. This is very important as businesses depend on the recovery of receivables. If a debt turns bad (irrecoverable debt) it can jeopardize the cash flow.  Therefore, cash management is also about being cautious and making enough provision for contingencies like bad debts, economic slowdown, etc.

♦Development In Cash Management Service

Cash Management has changed significantly during the last two decades for Two Reasons.

  • First: Over the years there was an upward trend in interest rates that increased the opportunity cost of holding cash. This encouraged financial managers to search for more efficient ways of managing cash.
  • Second: Technological developments, particularly computerized electronic funds transfer mechanism changed the way cash is managed.

♦Importance of Cash Management System

  • Cash management refers to a broad area of finance involving the collection, handling, and usage of cash. It involves assessing market liquidity, cash flow, and investments.
  • In banking, cash management, or treasury management, is a marketing term for certain services related to cash flow offered primarily to larger business customers.

Bank: It may be used to describe all bank accounts (such as checking accounts) provided to businesses of a certain size, but it is more often used to describe specific services such as cash concentration, zero balance accounting, and clearing house facilities. Sometimes, private banking customers are given cash management services.

Treasury management: Financial instruments involved in cash management include money market funds, treasury bills, and certificates of deposit.

♦Types of Cash Management Services

Products Offered by Banks Under Collections (Paper and Electronic)

  • Local cheque collections
  • High value (0 Day clearing)
  • Magnetic ink character recognition (MICR)
  • Outstation cheque collections
  • Cheques drawn on branch locations
  • Cheques drawn on correspondent bank locations
  • Cheques drawn on coordinator locations
  • House cheque collections
  • Outside network cheque collections
  • Cash collections
  • ECS-Debit
  • Post dated cheque collection
  • Invoice collections
  • Capital market collections

Products Offered by Banks Under Payments (Paper and Electronic)

  • Demand drafts/banker’s cheques
  • Customer cheques
  • Locally payable
  • Payable at par
  • Cash disbursement
  • Payments within bank
  • Capital market payments

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