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Cash management is a broad area of finance involving the collection, handling and usage of cash. It involves assessing market liquidity, cash flow and investments that enhance business growth (Amihud, et al., 2013:432). Cash management was defined as the collection, concentration and disbursement of cash and forms part of the working capital management that makes up the optimal level needed by a business (Mauchi, Nzaro, Njanike, Masvosva, Karambakuwa, Damiyano, Gopo, Gombarume, and Mangwende & Manomano, 2011:1302).

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According to San-José, Iturralde and Maseda (2008:193), cash management can be seen from two different perspectives that depend on how many responsibilities are included in cash management. The first perspective is that of treasury management (or basic cash management), and the second perspective is advanced cash management. Specifically, San-Joséet al. (2008:193) stated that treasury management handles actual cash management at the business, and one of its main functions is to establish the optimum cash level to ensure that payments can be made and received, as cash is necessary for the proper operation of the business. The second concept includes not only treasury management but also other tasks such as treasury forecasting, negotiation and establishment of relationships with financial institutions and financial risk management.

According to Owolabi and Obida (2012:2), cash management is a set of techniques that act on the short-term liquidity of the business and at the same time affects those factors and processes that translate immediately into cash with the ultimate aim of increasing both liquidity and profitability of the business. Owolabi and Obida (2012:2) further noted that cash management is the backbone of liquidity management as it significantly affects business liquidity.

Kumshe and Bukar (2013:835) cited the definition of cash management by Williams (2004) that cash management is seen as the strategy and associated processes for cost effectively managing the short-term cash flows and cash balances in businesses. Cash management brings together various functions associated with short-term financial flow management including liquidity management, banking management, management of treasury surpluses and deficits and financial risk management.

San-José, et al. (2008:200) cited that the recent financial crisis put cash collection and its management through effective internal control system back in the spotlight in most businesses, forcing treasurers to focus their efforts on ways to improve their business’s cash management. When liquidity is scarce, efficient cash management is vital to ensure that the available cash has been fully utilised. Even in normal times, efficient cash collection and management are crucial for a business, as lack of liquidity may

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result in an inability to pay liabilities, increased costs, and in worst case scenario the business may become insolvent (Gyebi & Quain, 2013:217).

According to Khatik and Jain (2009:73), cash management involves the efficient collection and disbursement of cash and any temporary investment of cash. Cash management also includes the management of marketable securities because in businesses, money comprises of marketable securities and actual cash in hand or in a bank. Thus cash management is concerned with the management of cash inflow and cash outflow of the business, cash flows within the business and cash balance held by the business at any point of time.

Yilmaz (2011:288) provided a different definition of cash management namely, “analysing corporate cash using data from financial statements, improving it, investing it by classifying cash surplus as free cash and dependent cash and financing cash gap coordinating with the other sub-departments of finance, the other functional departments, international and national economic, financial, legal, and social environments”. Yilmaz (2011:288) added that the functions of cash management could be fixed as follows: cash flow analysis, cash improving activities, calculating free cash and dependent cash, free cash management, dependent cash management and financing cash gap.

According to Owolabi, Obiakor and Okwu (2011:1), cash management is concerned with how quickly cheques are cleared and cash is available to the business for operations. This is inevitable as inadequate cash may force a business to miss incentives given by suppliers of credit, services and goods. Hence the quicker cheques payable to the business are cleared, the sooner the business has the funds available for its operations. Owolabi, et al. (2011:1) further asserted that cash management is important because the business must have sufficient liquidity to meet its obligations as they fall due and includes among others, payment of business expenses and the acquisition of inventory for the smooth running of the business operations.

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Scholars including Amihud, et al. (2013:432), Mauchi, et al. (2011:1302), San-José, et al. (2008:193) and Owolabi and Obida (2012:2) and Owolabi, et al. (2011:1) agree in their definitions of cash management that such management involves a set of techniques aimed at synchronising cash outflows and cash inflows to attain optimal cash balances. This is the same argument that Bhunia (2010:213) and Takon and Ogakwu (2013: 885) made when they stated that any successful business manager must strive to achieve optimum cash balance if it has to attain its growth objective thus suggesting that proper cash management is ideal for potential business growth.

Table 3.1 provides a summary of the various definitions of cash management as discussed.

TABLE 3.1: SUMMARY OF CASH MANAGEMENT DEFINITIONS

AUTHOR DEFINITION

Khatik and Jain (2009:73) The efficient collection and disbursement of cash and any temporary investment of cash.

Mauchi, et al. (2011:1302) Collection, concentration and disbursement of cash. It is part of the working capital management that makes up the optimal level needed by a business.

Owolabi, et al. (2011:1) Is concerned with how quickly cheques are cleared and cash is available to the business for operations.

Yilmaz (2011:288) The analysis of corporate cash using data from financial statements, improving it and investing it by classifying cash surplus as free cash.

Owolabi and Obida (2012:2) A set of techniques that act on short-term liquidity of the business and at the same time affect those factors and processes that translate immediately into cash with the ultimate aim of increasing both liquidity and profitability of the business.

Amihud, et al. (2013:432) A broad area of finance involving the collection, handling and usage of cash and involving assessing the market liquidity, cash flow and investments that enhance business growth.

Kumshe and Bukar (2013:835)

The strategy and associated processes for cost effectively managing the short-term cash flows and cash balances in businesses.

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Thus, from the review of the definitions of cash management provided in Table 3.1 and for the purposes of this study, cash management can be defined as a set of decisions and techniques adopted by business owners or managers aimed at ensuring that the business objectively collects and disburses cash while ensuring that it maintains optimum cash balances that will neither harm the liquidity position of the business nor jeopardise the long term profitability of the business.

The basic premise of this study is cash management in informal businesses. Having reviewed various generalised definitions of cash management, it is important that cash management in the context of informal businesses is also defined. This is done in the following subsection.