strategies of cash management

4 Effective Cash Management Strategies

Issue

Cash management is as simple as 1-2-3:
1. Take in as much cash as possible as quickly as you can.
2. Pay your bills.
3. Put the remainder back into the business.
Or is it? You may be surprised to learn that cash management is more complex than paying your bills and reinvesting the remaining funds.

Analysis

The first step in cash management certainly isn't brain surgery — bring cash into the business as quickly as possible. Bill promptly, follow up on overdue balances aggressively, require up-front deposits on sales whenever possible, offer discounts for early payment, etc. Then hold onto money as long as possible. Take as long as you can to pay bills without incurring late fees or damaging your business credit rating.
After this initial step, it's likely you will start running into some more complex questions. How can we know for certain that we really do have excess cash flow? What do you do with your excess profit? You may decide to invest it as a way of squeezing some extra profits from the business. But what if something goes wrong — you miscalculated your cash needs or owed a client a refund — and all of your money is tied up in investments?
To practice this second level of cash management you must first be able to accurately assess your current cash position and make reliable predictions of how much cash you are going to need in the future. Many entrepreneurs lack such expertise, so they turn to outside consultants who act as part-time chief financial officers. A cash management expert can help you make more detailed and useful assessments of your cash position, including monthly financial statements and cash flow reports. Then you can determine how much excess cash you really have and what to do with it.
Now that you know exactly how much cash you have on hand, you may be wondering what to do with it. When a company is growing rapidly it is usually not in a position to make large, long-term investments. Growth is unstable and unpredictable and large commitments to investments require stability and predictability of cash flow. But there are many ways you can start small:
1. Open a money market fund. At first, you can do what many families do to build up a small nest egg of working money. Set aside small sums each month in a money market fund. You won't get rich quick, but you will earn a greater return on your excess cash than if you put it in an interest-bearing checking or bank savings accounts, and the money remains readily available should you need it.
2. Invest in CDs. If your business' cash flow becomes so predictable that you have several months' worth of expenses in cash, you can invest in CDs. You will earn a higher yield but there will be penalties for early withdrawals should you unexpectedly need the money. This downside can be minimized by purchasing CDs in smaller denominations (which yield less interest) and staggering their maturity dates so cash is freed up at regular intervals.
3. Open a sweep account. Sweep accounts are trouble-free ways to squeeze the most interest out of small amounts of spare money. However, they make sense only if your bank's fees are less than the interest you will earn. There are two types of sweep account:

• Controlled-investment account: Every day, your bank will leave in your checking account only enough cash to cover the checks that were presented the night before for payment that day. The rest is swept, very early in the day, into overnight investments. Do not make electronic payments or wire transfers from controlled-investment accounts! They may be submitted for payment later in the day when your account has no money in it.
• End-of-day sweep account: Usually a safer bet for small business owners, this type of account waits until late in the day to determine how much to sweep into overnight investments. Typically, an end-of-day sweep account pays 0.1% to 0.2% less than a controlled-investment account.

4. Set up a lockbox account. Speed up posting of customers' payments to your bank account. Payments are mailed to a P.O. Box directly accessible by the bank, which processes receipts daily. You don't have to go to the bank (or send a subordinate) and stand in line to make deposits. Deposited checks don't sit in a teller's drawer all day, they are taken directly to the processing department. If your bank is regional or national you can set up lock-box accounts near your biggest customers, eliminating days of postal travel time for checks they mail to you.

The Bottom Line

Cash management isn't as simple as it seems. Its complexity, however, offers an opportunity for you to increase your assets. The strategies listed above can help you get the most out of your cash resources.
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risk analysis in capital budgeting

capital investment project can be distinguished from current expenditures

A capital investment project can be distinguished from current expenditures by two features:

a) such projects are relatively large
b) a significant period of time (more than one year) elapses between the investment outlay and the receipt of the benefits..

As a result, most medium-sized and large organisations have developed special procedures and methods for dealing with these decisions. A systematic approach to capital budgeting implies:

a) the formulation of long-term goals b) the creative search for and identification of new investment opportunities c) classification of projects and recognition of economically and/or statistically dependent proposals d) the estimation and forecasting of current and future cash flows e) a suitable administrative framework capable of transferring the required information to the decision level f) the controlling of expenditures and careful monitoring of crucial aspects of project execution g) a set of decision rules which can differentiate acceptable from unacceptable alternatives is required.

Nature, Importance and types of investment decisions

Nature

The investment decisions of a firm are generally known as the capital budgeting, or capital expenditure decisions. A capital budgeting decision may be defined as the firm’s decision to invest its current funds most efficiently in the long-term assets in anticipation of an expected flow of benefits over a series of years. The long-term assets are those that affect the firm’s operation beyond the one-year period. The firm’s investment decisions would generally include expansion; acquisition decisions would generally include expansion, acquisition, modernization and replacement of the long-term assets. Sale of a division or business (divestment) is also as an investment decision. Decisions like the change in the methods of sales distribution, or an advertisement campaign or a research and capital. In this chapter, we assume that the investment project’s opportunity cost of capital is known. We also assume that the expenditure and benefits of the investment are known with certainty.

Investment Importance

Investment decisions require special attention because of the following reasons:

• They influence the firm’s growth in the long run
• They affect the risk of the firm
• They involve commitment of large amount of funds
• They are irreversible, or reversible at substantial loss
• They are among the most difficult decisions to make.

Growth

The effects of investment decisions extend into the future and have to be endured for a longer period than the consequences of the current operating expenditure. A firm’s decision to invest in long-term assets has a decisive influence decision to invest in long-term assets has a decisive influence on the rate and direction of its growth. A wrong decision can prove disastrous for the continued survival of the firm; unwanted or unprofitable expansion of assets will result in heavy operating costs to the firm. On the other hand, inadequate investment in assets would make it difficult for the firm to compete successfully and maintain its market share.

Risk

A long-term commitment of funds may also change the risk complexity of the firm, if the adoption of am investment increases average gain but causes frequent fluctuations in its earnings, the firm will become more risky. Thus, investment decisions shape the basic character of a firm.

Funding

Investment decisions generally involve large amount of funds, which make it imperative for the firm to plan its investment programmers very carefully and make an advance arrangement for procuring finances internally or extremely.

Irreversibility

Most investment decisions are irreversible. It is difficult to find a market for such capital items once they have been acquired. The firm will incur heavy losses if such assets are scrapped.

Complexity

Investment decisions are among the firm’s most difficult decisions. They are an assessment of future events, which are difficult to predict. It is really a complex problem to correctly estimate the future cash flows of an investment economic, political, social and technological forces cause the uncertainty in cash flow estimation.

Investment Decisions Types
There are many ways to classify investment. One classification is as follows:

• Expansion of existing business
• Expansion of new business
• Replacement and modernization.
Expansion and diversification

A company may add capacity to its existing product lines to expand existing operations. For example, the Gujarat state fertilizer company (GSFC) may increase its plant capacity to manufacture more urea. It is an example of related diversification. A firm may expand its activities in a new business. Expansion of a new business requires investment in new products and a new kind of production activity within the firm. If a packaging manufacturing company invests in a new plant and machinery to produce ball bearing, which the firm has not manufactured before, this represents expansion of new business or unrelated diversification. Sometimes a company acquires existing firms to expand its business. In either case, the firm makes investment in the expectation of additional revenue. Investments in existing or new products may also be called as revenue-expansion investments.

Replacement and modernization
The main adjective of modernization and replacement is to improve operating efficiency and reduce costs, cost savings will reflect in the increased profits, but the firm’s revenues may remain unchanged. Assets become outdated and obsolete with technological changes. The firm must decide to replace those assets with new assets that operate more economically. If a cement company changes from semi-automatic drying equipment to fully automatic drying equipment, it is an example of modernization and replacement. Replacement decisions help to introduce more efficient and economical assets and therefore, are also called cost-reduction investments however; replacement decisions that involve substantial modernization and technological improvement expand revenues as well as reduce costs.

excise law

Excise law from Ravneet Kaur

custom law

Custom law from Ravneet Kaur

MEANING OF MARINE INSURANCE

Meaning Marine Insurance.

Marine insurance is concerned with overseas trade. International trade involves transportation of goods from one country to another country by ships. There are many dangers during the transshipment. The persons who are importing the goods will like to ensure the safe arrival of their goods. The shipping company wants the safety of the ship. So marine insurance insures the coverage of all types of risks which occur during the transit.

Marine insurance may be called a contract whereby the insurer undertakes to indemnify the insured in a manner and to the extent thereby agreed upon against marine losses.

Marine insurance has two branches:

1. Ocean Marine Insurance.
2. Inland Marine Insurance.

Ocean marine insurance covers the perils of the sea whereas inland marine insurance is related to the inland risks on the land.

Marine insurance is one of the oldest forms of insurance. It has developed with the expansion of trade. It was started during the middle ages in Italy and then in England. The sending of goods by the sea involves many perils; so it was necessary to get the goods insured. In modern times marine insurance business is well organized and is carried on scientific lines.

20 DIFFERENT TYPES OF marine insurance POLICIES

Different classes of policies are used in marine insurance.

1. Voyage Policies :
The policy is issued to cover a particular voyage from one port to another and from one place to another. The policy mentions the port of departure and the port of destination, between which the risks are generally underwritten.
This policy is not suitable for hull insurance as a ship usually does not operate over a particular route only.
However, this policy may include time factor also as from Bombay to London for one year. In this case the risk may be covered from one place to another covering a period of one year.
The policy is used mostly in case of cargo insurance. The goods remain covered even when the ship halts at intermediate ports.
The risks at the port of departure and at the port of destination may be covered by incorporating suitable, clauses in the policy. The liability of the insurer continues during landing and re-shipping of the goods.
2. Time Policies:
Under this policy, the subject-matter is insured for a definite period of time, e.g., from 6 a.m. of 1st January, 1976 to 6 a.m. of 1st January, 1977.
The policy is generally taken for one year although it may be for less than one year. This policy is commonly more used for hull insurance than for the cargo insurance.
The policy may cover, while navigating the vessel or while under construction. Risks covered under construction are for more than 12 months.
There are standard clauses in relation to freight, premium, interests, etc., which are added to this policy. The time policy may be taken in case of goods and other movable vessels.
3. Voyage and Time Policy or mixed Policies:
In this policy, the elements of voyage policy and of time policy are combined in under this policy. The reference is made certain period after completion of voyage. For example, 24 hours after arrival. It may be beneficial to hull as well as to cargo insurance.
4. Valued Policies :
Under this policy the value of loss to be compensated is fixed and remains constant throughout the risk except where there is fraud and excessive over-valuation. The value of the subject-matter is agreed between the insurer and the assured at the time of taking the insurance.
It is also called insured value or agreed value. It forms the measure of indemnity at the time of loss. The insured value is not necessarily the actual value.
It may be total of invoice, e.g., cost of goods, freight; shipping charges, insurance and a certain percentage of margin (generally 10 per cent) to cover anticipated profits.
5. Unvalued Policies :
When the value of policy is not determined at the time of commencement of risk but is left to be valued when the loss takes place. The value thus left to be decided later on is called the insurable value or unvalued or valuable policy.
In deciding the value, the invoice cost, freight, shipping and insurance charges are included and no margin for anticipated profit is added.
Usually unvalued policies are not common in marine insurance because evaluation of loss at the time of damage poses a difficult problem. It is extremely difficult when consignment goes nearer the port of destination.
In hull insurance, the insurable value is determined taking into account the value of the ship at the commencement of risk including provision and, stores for officers and crew plus the charges of insurance.
In insurance on freight whether paid in advance or otherwise, the insurable value is the gross amount of freight plus the charges of insurance. Similarly, in cargo insurance it would be the cost of goods plus expenses and insurance charges.
A limitation of insurable value is desirable not only to fix the measure of indemnity under an unvalued policy, but also to provide an approximate basis for the calculation of value in a valued policy.
6. Floating Policies :
This policy describes the general terms and leaves the amount of each shipment and other particulars to be declared later on. The declaration is made in order of dispatch of shipment.
The policy is taken for a round large sum which is specified at each declaration and is attached to each shipment. With each declaration the amount will be reduced till it is exhausted when the insured sum is said to be 'closed' and the policy is 'fully declared' or, 'run off.
The most popular form of contract is 'Open Cover'. It is an agreement between the insured and the insurer by which the assured on his part agrees to declare, and the insurer on his part agrees to accept all the shipments falling within the scope of the 'open cover' which is merely an original ship'.
It is not a legal contract of marine insurance and suffers from the same legal disability as the 'original 'ship'. However the insured and the insurers are honour bound. To give 'Open Cover' a legal form, a policy is issued for the purpose.
Separate policies are not issued in case of each shipment but only one policy is issued at the time of entering into contract.
All declarations are written on the back of the" policy. A classification clause is usually inserted in 'open cover' to provide the agreed rates of premium. Similarly, valuation clauses are also inserted to provide the basis for valuation in the event of loss taking place.
This policy is suitable for a cargo-owner who makes regular shipments of cargoes. All his shipments are automatically covered as soon as the declarations are made. The floating policies are mostly used in the age of gigantic trade.
7. Blanket Policies :
The policy is taken to cover losses within the particular time and place. The policy is taken for a certain amount and premium is paid on the whole of it in the beginning of the policy and is re-adjusted at the end of the policy according to the actual amount at risk.
If the actual coverage of risk is less than the total amount of insurance, the premium related to the excess amount is returned to the insured.
On the other hand, if the amounts of shipments are greater than the insured sum, additional premium is charged over the excess protection.
8. Named Policies :
Under this policy, the name of the ship and the amount of insured cargo are mentioned. These policies are specific policies.
9. Single Vessel and Fleet Policies :
A ship or a fleet of ships is insured in a single policy. When one policy is assured, it is called single vessel policy and when a fleet of ship is insured in single policy, it is called fleet insurance policy.
The advantages of the fleet policies are that even old and weak ships are also insured. This insurance facilitates easy and smooth functioning of insurance benefits.
10. Block Policies :
This policy insures incidental inland risks, too, along with the marine perils. For example, cotton is insured from the time of processing to the time when it was delivered at the point of destination.
11. Currency Policies :
Policies issued in foreign currency are called currency policy, where the sum assured is stated in foreign currency.
This policy avoids the fluctuation in foreign currencies because the claim amount is determined in the foreign currency and the fluctuations in the exchange rates of the inland and foreign currencies up to the period of the policy are meaningless.
12. P.P.I. Policies :
The policy is issued to avoid the complication of the principle of insurable interest. These are called 'Policy Proof of Interest' and are honored by the insurer even in absence of insurable interest.
This policy is based on mutual understanding, so, it is called honored policies. This is also called wagering policies because insurable interest is not required; consequently, it cannot be legally enforceable.
13. Special Declaration Policy :
A special declaration policy (SDP) is a form of floating policy issued to clients who have a large turnover with many and frequent dispatches of goods.
The minimum annual estimates dispatches shall be Rs. 3 Crore for the individual company concerned. Issue one of SDP to transport operators/ agents or forwarder is prohibited.
The policy shall not be issued in joint names. However, financial in tests of a bulk or the financial institution may be recorded in the policy. Special declaration policy is not assignable or transferable. The sum insured shall be on the basis of the previous year's turnover.
Mid-term increase in the sum insured may be allowed once only during the currency of the policy. Insurance may be renewed subsequently for an amount not less than the total amount of the expiring year turnover.
Anneal turnover means total insured value of goods in transit. It many include all incoming and outgoing consignments comprising capital goods, raw materials, stores, finished and semi finished products.
Total value of the goods shall be declared at periodical intervals but at least once on completion of each quarter in the form of certified statement.
14. Annual Policy:
The Annual Policy is insured for a period of 12 months to cover goods belonging to the assured or held trust by the assured. The policy in not assignable or transferable. The policy is not allowed to be issued to transport operators/contractors, clearing, forwarding and commission agents or to freight forwarders.
Nor can this policy be issued in Joint Names. The sum insured is the aggregate maximum estimated value on rail/road at any one time of all the insured goods in respect of a specified transit.
The policy shall be subject to condition of average stipulating that if at the time of any loss damage, the total value of goods in transit is more than the sum assured in respect of that specified transit, the assured shall be considered as being his own insurer for the difference and shall bear a rate able proportion of the loss accordingly.
Sum assured under the Annual Policy shall stand; reinstated as from the time of the happening of an event giving rise to a valid claim and the assured shall remain responsible for a pro-rata additional premium for the remaining period of the policy on the amount reinstated continuing from the date of the loss.
15. Inland Transit Cargo Policy:
Inland Transit Policy covers all risk for inland transit for rail on road. It may cover only a few risks such a fire or theft or strikes, riots, civil commotion.
The cover may be extended up to 7 days after arrival at destination. It may be extended per week additional premium for a subject to not exceeding 8 weeks. This extension apply to goods only which is lying in railway or road carrier's premises or in clearing and forwarding agents' warehouse in bonded warehouse at the destination.
16. Inland Vessel Policy:
Inland vessel policy covers all cargoes carried on rivers, canals or other smooth waters including F.O.B shipment. General average sacrifice and jettison are not included in the risk covered. The rate of premium is based on age, propelled angina, steel, wooden boats, etc.
17. Indian Coast Ports Policy:
This policy covers cargo on coastal voyage, covered by self propelled vessels of iron or steel con­struction which are not over 15 years of age and not under 450 tons GRT/Rates depend upon Voyage between different categories of ports.
For timber stored on deck, insurance shall be limited to free of all Average (FA A) and Institute Cargo Clauses (ICC) covers both including jettison and washing over board.
18. Free on Board Policy:
The policy is arranged by the buyer overseas for his own account and benefit. Risks under the buyer's policy commence on loading of the cargo on the overseas vessel, because it is at that juncture of transit that the risk passes from the seller to the buyer.
The covers start from the time the cargo leaves the warehouse till such goods are loaded on the ship. The policy also cover loss/damage reasonably attributable to craft, raft or lighter being stranded, grounded, sunk or capsized.
19. Sailing Vessels Policy:
Sailing vessels include country craft total and/or constructive total loss of the subject-matter insured attributable to fire or shrinking or stranding. Loss/Damage are also covered of subject-matter insured caused by jettison due to stress of weather stranding sinking or burning or collision at sea.
20. Package Policy:
This policy has bear devised under the tariff to cater to the special requirements of certain categories of business such as tea estates coffee estate and Export Promotion under Duty Exemption Scheme

marine insurance policies

Different Types of Marine Insurance & Marine Insurance Policies

The subject of Marine Insurance is very wide and encompassing, which is why there is a definite categorization of various types of marine insurance and different types of marine insurance policies. As per the needs, requirements and specifications of the transporter, an appropriate type or types of marine insurance can be narrowed down and selected to be put into operationThe types of marine insurance available for the benefit of a client are many and all of them are feasible in their own way. Depending on the nature and scope of a client’s business, he can opt for the best marine insurance plan and enjoy the advantage of having marine insurance.
The different types of marine insurance can be elaborated as follows:

• Cargo Insurance: Cargo insurance caters specifically to the cargo of the ship and also pertains to the belongings of a ship’s voyagers.

• Hull Insurance: Hull insurance mainly caters to the torso and hull of the vessel along with all the articles and pieces of furniture in the ship. This type of marine insurance is mainly taken out by the owner of the ship in order to avoid any loss to the ship in case of any mishaps occurring.

• Liability Insurance: Liability insurance is that type of marine insurance where compensation is sought to be provided to any liability occurring on account of a ship crashing or colliding and on account of any other induced attacks.

• Freight Insurance: Freight insurance offers and provides protection to merchant vessels’ corporations which stand a chance of losing money in the form of freight in case the cargo is lost due to the ship meeting with an accident. This type of marine insurance solves the problem of companies losing money because of a few unprecedented events and accidents occurring.

In addition to these types of marine insurance, there are also various types of marine insurance policies which are offered to the clients by insurance companies so as to provide the clients with flexibility while choosing a marine insurance policy. The availability of a wide array of marine insurance policies gives a client a wide arena to choose from, thus enabling him to get the best deal for his ship and cargo. The different types of marine insurance policies are detailed below:

• Voyage Policy: A voyage policy is that kind of marine insurance policy which is valid for a particular voyage.

• Time Policy: A marine insurance policy which is valid for a specified time period – generally valid for a year – is classified as a time policy.

• Mixed Policy: A marine insurance policy which offers a client the benefit of both time and voyage policy is recognized as a mixed policy.

• Open (or) Un-valued Policy: In this type of marine insurance policy, the value of the cargo and consignment is not put down in the policy beforehand. Therefore reimbursement is done only after the loss to the cargo and consignment is inspected and valued.

• Valued Policy: A valued marine insurance policy is the opposite of an open marine insurance policy. In this type of policy, the value of the cargo and consignment is ascertained and is mentioned in the policy document beforehand thus making clear about the value of the reimbursements in case of any loss to the cargo and consignment.

• Port Risk Policy: This kind of marine insurance policy is taken out in order to ensure the safety of the ship while it is stationed in a port.

• Wager Policy: A wager policy is one where there are no fixed terms of reimbursements mentioned. If the insurance company finds the damages worth the claim then the reimbursements are provided, else there is no compensation offered. Also, it has to be noted that a wager policy is not a written insurance policy and as such is not valid in a court of law.

• Floating Policy: A marine insurance policy where only the amount of claim is specified and all other details are omitted till the time the ship embarks on its journey, is known as floating policy. For clients who undertake frequent trips of cargo transportation through waters, this is the most ideal and feasible marine insurance policy.

Marine Insurance is an area which involves a lot of thought, straightforward and complex dealings in order to achieve the common ground of payment and receiving. But as much as complex the field is, it is nonetheless interesting and intriguing because it caters to a lot of people and offers a wide range of services and policies to facilitate easy and uncomplicated business transactions. Therefore, in the interest of the clients and the insurance providers, it is beneficial and relevant to have the right kind of marine insurance. It resolves problems not just in the short run, but also in the long run as well.

marine insurance

Basics of Marine Insurance. from S. M. Gupta

types of marine insurance policies

TYPE OF MARINE INSURANCE POLICIES

The major types of marine insurance policies are

1. Time policy
A time policy is taken for definite period of time, usually not exceeding 12 months say from January 1, 1981 to December 31, 1981. This policy is most suitable for hull insurance.
2. Voyage policy
Where the subject matter is insured for a specific voyage, say from Karachi to Port Saeed it is named as voyage policy.
3. Mixed policy
This policy is the combination of time and voyage policy. It, therefore, covers the risks for both particular voyage and for a stated period of time.
4. Floating policy
Floating policy is taken for a relatively large sum by the regular suppliers of goods. It covers several shipments which are declared afterwards along with other particulars. This policy is most situated to exporter in order to avoid trouble of taking out a separate policy for every shipment.
5. Valued policy
Under its terms the agreed value of the subject matter of insurance is mentioned in the policy itself. In case of cargo this value means the cost of goods plus freight and shipping charges plus 10% to 15% margin for anticipated profit. The said value may be more than the actual value of goods.
6. Unvalued policy (Open Policy)
Where the value of the subject matter of insurance is not declared but left to be ascertained and proved later it is called unvalued policy.
7. Builder's risk policy
This policy is issued for more than one year. This covers the risk of damage to vessels from the time its construction commences until its trail is completed.
8. Blanket policy
Under the condition of the blanket policy the maximum limit of the required amount of protection is estimated which is purchased in lump sum. The amount of premium is usually paid in advance. This policy describes the nature of goods insured, specific route, ports and places of the voyages and covers all the risk accordingly.
9. Port risk policy
This policy covers all the risk of a vessel while it is standing at a port for particular period of time.
10. Wager policy
Where the assured has no insurable interest in the subject matter of insurance that is know as wager policy. As this policy has no legal effect so it cannot be taken to a court of law. If underwrite refuses to accept the claim the policy holder cannot take any legal action against him. It is, therefore, also called as gambling policy.
11. Special hazards policy
This policy covers special risks incident to piracy and war. It provides protection to insured under agreement against seizure, capture, detention and other war risks.
12. Composite policy
This type of policy is purchased from more than one under writers. If there is no any motive of fraud then insured will be indemnified by each under writer separately in case of loss.
13. Block policy
This policy is particularly purchased to gold diggers. It covers all the risks of damage to gold from the time of its recovery to its distinction. This types of policy has been introduced in Africa and is very popular in the mine fields of gold.