Advantages and weaknesses of the minimum-cash-balance practice

Advantages and weaknesses of the minimum-cash-balance practice

An advantage of maintaining a minimum cash balance is the company now has liquidity to pay bills, order inventory, and fund the payroll. This is especially critical if the business doesn’t have credit which would enable this flexibility. A disadvantage is the company now has money tied up without having definite knowledge on what it’s expenses are. There is less specific information on the cash flow.