Question

Cash Management

Need 1-2 pages on optimizing cash management as well as suggestions on how you could improve the processess of cash management.

Answer 1

Cash management is a broad term that refers to the collection, concentration, and disbursement of cash. The goal is to manage the cash balances of an enterprise in such a way as to maximize the availability of cash not invested in fixed assets or inventories and to do so in such a way as to avoid the risk of insolvency.In some ways, managing cash flow is the most important job of business managers. If at any time a company fails to pay an obligation when it is due because of the lack of cash, the company is insolvent. Insolvency is the primary reason firms go bankrupt.Companies suffering from cash flow problems have no margin of safety in case of unanticipated expenses. They also may experience trouble in finding the funds for innovation or expansion.

The cash management specialist will outline the characteristics of the company, identify the challenges in the processes and come up with recommendations as to which areas can be optimised - from extensive improvement proposals right down to minor improvements to support current processes.

It provides an opportunity to increase the value of your company, as it:

• frees up resources from administration and routine tasks
• provides an overview of debtors, creditors and liquidity across national borders and currencies
• streamlines and automates payment routines and processes
• allows integration with current systems
• optimises the reminder procedure
• minimises funds tied up in working capital.

Some useful cash management techniques to help you as you grow your business:

Monitor Your Cash Flow Regularly

Staying on top of your cash flow is the first and foremost important aspect of cash management. To help with this, create a cash flow budget that charts finances for shorter and longer terms. This will assist in understanding where your money will be going and how much is necessary, as well as keeping track of what finances you currently have and should be spending.

Bill Promptly and Accurately

The faster you mail an invoice, the sooner you will be paid. If your company's deliveries or services do not automatically trigger an invoice, then establish a weekly billing schedule to stay on top of things. Along with this, always include a payment due date to encourage customers to pay quickly.

Encourage Faster Payments

If payments are coming in at a rate that isn't beneficial to your company, it's time to begin encouraging faster payments. There are options such as offering discounts for early payment that can be used or other incentives that your company can offer. Be sure to ensure that getting paid early is worth the loss, though. Too much of a discount could only be more of a financial burden.

Designate a Cash Flow Monitor

Choosing a trustworthy employee to monitor cash flow provides your business with someone to watch and inform you when your company reaches a certain threshold. This is an excellent way to stay on top of things efficiently without taking up too much of the company's time and resources.

The recommendations of the cash management specialist are presented to your company's management at a reporting meeting at which you jointly prepare an action and implementation plan. We can also offer a follow-up meeting, depending on how many recommendations you choose to implement, and how complex these are.