'Cash Management' is explained in detail and with examples in the Corporate Finance edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
Cash management refers to the corporate functions of gathering, handling, and short term investing cash. This represents a critical part of making certain a firm is financially viable and stays solvent. In many cases, the business managers of a company or corporate treasurers of a large corporation will handle the aggregate cash management responsibilities. This means they will be responsible for ensuring the firm continues to be financially viable and solvent on a week to week basis.
There is more to successfully handled cash management than simply sidestepping financial problems or even bankruptcy. This job also involves bringing in invoice payments and account receivables, boosting the rates and speed of collection, improving the level of available cash at hand, and picking out relevant short term investment instruments which will all contribute to better profits and a stronger cash position for the firm in question.
Those small business managers and developers must learn to manage cash flow well since they do not enjoy low cost access to easy credit. They also encounter many ongoing running costs that they have to stay on top of while they are waiting for their customers to pay their receivables. By properly and prudently managing their cash flow, firms are able to cover unanticipated costs and to effectively cover their routine financial events like payroll on a bi-weekly or semi-monthly basis. The point of cash management is to effectively balance out two main corporate counteracting forces. These are the receivables for incoming cash and the outflows of payables.
Part of the dilemma for many companies struggling to effectively run their cash management operations is that invoices and receivables are positive cash flow on the books, yet in practice they are not always received immediately. Some invoice terms allow for the customer to wait from 30 to 60 to even 90 days to settle their invoices. This is how businesses can actually find themselves in the uncomfortable position of their sales growing even rapidly and still have cash flow problems because their receivables come in slowly or even unfortunately late.
Businesses have a variety of tools and means to speed up their receivables so that their payment float becomes reduced. Some of these are to deploy an auto billing service that immediately invoices the customers electronically, to make clear the billing and payment terms to the clients, to keep on top of all collections with an aging receivables spreadsheet, to offer incentives for same as cash 10 day invoice payments, and to collect payments via electronic payment processing at a bank.
Businesses which are successful in controlling their payables will be better capable of maintaining positive cash flows. Through streamlining the efficiency of the payables operations, firms are able to lower their costs all the while holding on to more cash which they can put to work in the company operations. There are a wide variety of effective payable management solutions available today. Some of these include direct payroll deposits, payment processing which is handled electronically, and closely and carefully controlled cash disbursements. Each of these processes will help to both automate and make efficient all of the payout operations.
Thanks to the variety of digital age offerings, the vast majority of payable management and receivable operations may be simply automated through current day solutions in business banking. Smaller companies are now able to operate with the same big scale technologies for cash management as the mega corporations. This is in no small part due to the rapid march of technological advances across business solutions and banking. Such cost savings created by these cutting-edged cash management techniques effectively more than offset the costs of utilizing them. The best part of the process nowadays is that a firm’s management is capable of allocating critical resources to expanding the core business better than ever before possible.