What Is Cash Management In Terms Of Finance

What Is Cash Management In Terms Of Finance

The word “cash” has become evident that we are talking something about finance.

What Is Cash Management?

Cash management simply means managing cash and also using it in short-term investment. Cash management ensures the financial stability of a company. This responsibility generally owes to treasurers in the company.

What Is The Importance Of Cash Management?

Cash management is the core practice required for a company to be solvent and do not collide. It involves various different aspects that make its importance quite evident:

  • It is helpful to avoid insolvency.
  • It reduces the Account Receivable.
  • The collection rate will be increased.
  • The cash will be increased.
  • Improvement of a company’s
  • Allows the company to manage payrolls.

Successful cash management is the most divine skill needed in business.

What Are The Optimal Areas Of Cash Management?

Cash management divides into two optimal areas:

  • Receivables: It allows in-flow of cash.
  • Payables: It deals with an outflow of cash.

Cash Management In Terms Of Receivables:

The receivable is the amount of cash earned in terms of invoice whose payment is not received yet. It involves awaiting a period of a month or more. Businesses involve so many tactics to decrease the rate of receivables such as:

  • Early clarification of bills from customers.
  • Usage of automated billing services to ensure that customers are billed immediately.
  • Use electronic means of cash collection such as banks rather than manual payments.

Cash Management In Terms Of Payables:

Payables are all those cash payments that a company has to pay. If a company can handle the payables, the cash flow is controlled automatically. Cash management of payables involve different mechanisms through which the process is controlled and streamlined:

  • Electronic Payment.
  • Payroll Deposit.
  • Disbursement in control.
  • Banking solutions.

With the advent of technology, cash management has become more digitalized. Small businesses can work on the same ground as big companies’ cash flow management techniques.

Understanding Cash Management Through An Example:

There is a company A which manufactures laptops. It purchases raw materials from company B. Company B allows credit payment which means company A can pay in 30 days. Company A owns $20 million. It has to pay $5 to company B within 30 days. If a treaty or agreement is signed between two companies in such a way that the period of payment increases from 30 to 60 days. Company A has double time. It can avail this time in consuming on other projects and earn more. Hence, the cash flow is managed.

Conclusion:

If the cash and resources are managed, it will result in betterment for the company. Get a AARP supplement quote here https://www.medicaresupplementplans2019.com/aarp-medicare-supplement-plans-2019/