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Cash Management

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  • Jan. 2009
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Cash Management
Cash management has become a critical part of the business operation today. Quicken software is no longer enough for businesses to keep track of financial results and manage the cash flow. There are various cash management techniques that can help business manage their cash better. It is essential to make sure that a company has enough cash flow to keep the operations running smoothly. This paper will compare and contrast the various cash management techniques and short-term financing commonly used by companies. Cash Management Techniques

There are many different types of techniques that can be used to manage cash. Cash management involves forecasting cash budgets, speeding up collections, and monitoring receipts and payments. Most companies want to keep a minimal amount of cash on hand. Cash must be held for transactions, bank payments, and potential emergencies. “The second major reason for holding cash results from the practice of holding balances to compensate a bank for services provided rather than paying directly for those services” (Block & Hirt, 2005). Many companies take advantage of the credit they receive to cover as many payables as possible. This can be done with the help of the float. The float “arises from time delays in mailing, processing, and clearing checks through the banking system” (Block & Hirt, 2005). The advantage of the float is that it allows companies to use their cash up until it is claimed by the recipient’s bank. The faster a company collects its receivables the more time it has to pay its own bills. The disadvantage of the float is people writing checks with no funds to cover it. Electronic checks have made it harder for people to take advantage of the float. “The increased use of electronic funds transfer systems both domestically and internationally is reducing float and making collections and disbursements more timely” (Block & Hirt, 2005). All managers regardless of the type of company or size should come...

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