Essay on Cash Management

1545 Words Feb 23rd, 2014 7 Pages
Cash management is a need common to both large and small businesses alike. In its simplest terms, cash management is the assurance that today's receivables plus today's account balances exceed today's payables. Failure to practice this business management process guarantees bankruptcy.

Every large organization has a cash management group, sometimes called the treasury. This group's function includes management of such items as investments and borrowing in addition to the organization's daily cash flow. In small to medium businesses (SMBs), usually the chief financial officer (CFO), president, or owner performs the task of cash management.

Regardless of a company's size, the important thing is that cash management is practiced on a
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Yet cash management for many companies is a mix of financial software and spreadsheets, with the majority of decisions based on spreadsheet manipulations. Cash Management Operations Effective cash management requires having a firm handle on the following two areas:

1. Cash inflows

•Daily morning and afternoon deposits from the Automated Clearing House (ACH)—where morning deposits are received from local banks and afternoon deposits are received from banks located more than two time zones away—electronic data interchange (EDI) transfers, e-mail notifications, etc.

•Forecasted deposits for the day, generated from cash management software. These are based on reliable deposits taken from sales invoice dates plus credit days allowed (e.g., net 30, 2 percent net 10, etc.).

•Checks received in the mail.

•Over-the-counter cash receipts.

•Credit card receipts.

•Forecasted deposits based on disputed invoices (i.e., invoices where credit notes may have to be issued) or the "poor payer" category of customers, generated from cash management software.

•Investment income.

2. Cash outflows

•"Must pay" accounts (e.g., payroll).

•Commissions; local, state, and federal liabilities (e.g., taxes, social security, etc).

•Payment to liability accounts (e.g., insurance, mortgages, leases, employee travel expenses).

•Valuable suppliers that provide payment

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