Cash management is a critical function of treasury management that involves managing an organization's cash flows to optimize liquidity, minimize the cost
... [Show More] of borrowing, and maximize returns on cash balances.
The primary goal of cash management is to ensure that an organization has sufficient cash on hand to meet its short-term obligations while also maximizing the value of its cash balances. This involves identifying and forecasting cash inflows and outflows, and developing strategies to manage cash balances effectively.
Cash management may involve a variety of techniques and tools to manage cash flows, including:
Cash concentration: consolidating cash from multiple entities or subsidiaries to reduce idle cash balances and lower borrowing costs.
Cash forecasting: developing cash flow projections to anticipate cash needs and identify potential shortfalls or surpluses.
Cash positioning: managing cash balances to optimize liquidity and maximize returns, for example, by investing excess cash in short-term instruments such as money market funds or commercial paper.
Payment processing: managing payments and collections to optimize cash flow, for example, by using electronic payment systems or optimizing payment terms with customers and vendors.
Working capital management: managing working capital, which refers to the cash needed to fund day-to-day operations, by optimizing inventory levels, managing accounts receivable and accounts payable, and monitoring cash flow metrics such as the cash conversion cycle.
Effective cash management requires a deep understanding of an organization's cash needs and the ability to develop and implement strategies to manage those needs. By optimizing cash flows and maximizing returns on cash balances, cash management can help organizations improve their financial stability, reduce borrowing costs, and achieve their strategic objective [Show Less]