Question

In: Finance

Define short-term management What are some strategies for effective short-term management

Define short-term management

What are some strategies for effective short-term management

Solutions

Expert Solution

The short-term management strategies are mainly related to the working capital management, i.e. normally for a period of year, although for some companies their operation defines what is short-term period. In the short term, the focus is mainly on managing the working capital requirement and investment of excess cash with the company.

There are different types of ways to manage short-term requirement of funds:

· The company can focus on reducing the number of days it takes to collect the receivable, that is it can ask its customer to pay back the receivable quickly or it can reduce the credit sales and focus more on cash sale and hence reducing the cash conversion cycle.

· The company can also negotiate with its supplier to delay in making payment to them, if the company is taking time to make payment to its supplier then its cash burden to pay will be reduced and this can also reduce the cash conversion cycle.

· If the company has excess cash then the short-term management of funds would be with reference to the how to invest the excess funds lying with the company so that it can invest it and gain return on the market. To manage excess short-term cash there are basically two types of strategies, conservative and aggressive. You can choose to invest in highly liquid short-term investment funds which gives low return with high certainty or you can choose to invest in high yield deposits like CD, or commercial paper for short term.


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