Controlling the Cash Balance

The Cash element of Working Capital now becomes of crucial importance.

If we have too high a Bank Balance, then the money might be gaining interest, but hopefully, we would obtaining a better ROCE employing it in the business.

If we have too low a Bank Balance (or an overdraft), then we are in danger of incurring penalties in the form of overdraft interest payments

Controlling the Cash Balance

There are many techniques for controlling the cash element of Working Capital:

One model proposes: A Target Balance Inner Limits (+/-) (close to the target) Outer Limits (+/- ) (further away)