Cash Management
AdvancedCash management is the process of collecting, holding, spending and investing a business's cash efficiently, so that it always has enough to meet its needs while making good use of any surplus.
Even profitable businesses can fail if they run out of cash. Cash management focuses on the timing and control of cash flows.
Key activities include speeding up collections from customers, managing payments to suppliers so they are made on time but not unnecessarily early, forecasting cash needs, maintaining an appropriate cash buffer, arranging credit lines for shortfalls and investing surplus cash in safe, liquid instruments.
For example, a business might offer customers a small discount for paying early, move from paper invoices to electronic payments to receive money faster, and use a cash pooling arrangement so that surplus cash in one bank account automatically covers a shortfall in another.
Good cash management reduces borrowing costs, earns interest on surpluses and lowers the risk of financial distress. For small businesses, it may involve simple weekly cash forecasts and close attention to invoices. For large companies, it is part of the treasury function and uses sophisticated banking systems.
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