31 January 2011
Recently in 2008; we have experienced that more than 200 banks have failed in US due to failure of Cash Management.
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People of US could not pay their loans as they invested more money in properties and used more cash on credit cards without maintaining their day-to-day requirement of cash.
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In business also; majority of current assets may be blocked into stocks and debtors.
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In these situations; the business enterprise may find acute difficulties to pay its current liabilities in time which is very important to run the business efficiently.
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If term loans have been taken from financial institutions; then it would lead to non-payment of instalment and interest if proper cash is not available with the firm.
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The result of above may turn down to NPA ( Non-performing Asset ) for the bank which ultimately take action against the borrower.
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Now-a-days; banks are entitled to sell off the properties without interference of the courts.
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So it may be concluded that if firm is unable to manage its day to day cash requirements; then it may lead to closure of the business.
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