In this chapter, we have examined cash and liquidity management. We saw that:
A firm holds cash to conduct transactions and to compensate banks for the various services they render.
The difference between a firm's available balance and its book balance is the firm's net float. The float reflects the fact that some checks have not cleared and are thus uncollected. The financial manager must always work with collected cash balances and not with the company's book balance. To do otherwise is to use the bank's cash without the bank's knowing it, which raises ethical and legal questions.
The firm can make use of a variety of procedures to manage the collection and disbursement of cash in such a way as to speed up the collection of cash and slow down the payments. Some methods to speed up the collection are the use of lockboxes, concentration banking, and wire transfers.
Because of seasonal and cyclical activities, to help finance planned expenditures, or as a contingency reserve, firms temporarily hold a cash surplus. The money market offers a variety of possible vehicles for "parking" this idle cash.
