Cash Management

The efficient and strategic control of an organization's cash flows, encompassing processes such as collection, disbursement, investment, and overall liquidity

Author: Elliot Meade
Elliot Meade
Elliot Meade
Private Equity | Investment Banking

Elliot currently works as a Private Equity Associate at Greenridge Investment Partners, a middle market fund based in Austin, TX. He was previously an Analyst in Piper Jaffray's Leveraged Finance group, working across all industry verticals on LBOs, acquisition financings, refinancings, and recapitalizations. Prior to Piper Jaffray, he spent 2 years at Citi in the Leveraged Finance Credit Portfolio group focused on origination and ongoing credit monitoring of outstanding loans and was also a member of the Columbia recruiting committee for the Investment Banking Division for incoming summer and full-time analysts.

Elliot has a Bachelor of Arts in Business Management from Columbia University.

Reviewed By: Christy Grimste
Christy Grimste
Christy Grimste
Real Estate | Investment Property Sales

Christy currently works as a senior associate for EdR Trust, a publicly traded multi-family REIT. Prior to joining EdR Trust, Christy works for CBRE in investment property sales. Before completing her MBA and breaking into finance, Christy founded and education startup in which she actively pursued for seven years and works as an internal auditor for the U.S. Department of State and CIA.

Christy has a Bachelor of Arts from the University of Maryland and a Master of Business Administrations from the University of London.

Last Updated:November 21, 2023

What is Cash Management?

Cash management is the discipline of collecting and regulating cash flows. It is the monitoring and control of a company's cash flow to guarantee that it has enough money to operate.

It is an important component of a company's financial stability in business. Individuals require cash for financial security and as part of an overall wealth portfolio. 

Larger corporations may have full-time departments dedicated to the role of treasury management. Investments, bill payments, and unforeseen obligations can impact a company's cash inflows and outflows. 

The ultimate purpose is to maximize liquidity while minimizing funding costs.

Cash management refers to the consultants and specialized products and services that assist firms in simplifying the collecting, distribution, and reporting of their cash flows in the banking and financial services industry. 

It includes collecting and managing cash generated by a company's operating, investing, and financing operations. 

It is critical for both businesses and people since it is a component of financial stability.

Key Takeaways

  • Cash management is the practice of overseeing and regulating cash flows within a company, crucial for ensuring operational funds and overall financial stability.
  • It is focused on operational efficiency and process improvement, aiming to optimize the flow of money in and out of a company.
  • Every business needs financial management competence to meet payment commitments, plan for future payments, and maintain corporate stability.

Understanding Cash Management

The word Cash Management refers to the day-to-day management of cash inflows and outflows. Banks are often the principal financial service provider for cash asset custody. Because it is such an important function in every organization, it is easy to see how it may make or destroy a business. 

Cash management, in its most basic form, is the process of collecting and managing cash flows. It is based on a company's cash flow or the amount of money that comes in and out of the firm. 

Companies and people provide a wide range of services in the financial markets.

It is a treasury discipline devoted to the management of budgeted expenditures. Hence it is heavily focused on operational efficiency and process improvement.

It is about maximizing the flow of money coming in from consumers, part of which goes into savings and some of which goes out to pay bills. The word "cash management" is frequently used incorrectly in the banking industry. 

When bankers talk about cash management, they typically mean a specific line of business for the bank that provides goods and services to corporations to help them with their management tasks. 

They frequently refer to this line of business as "transaction services," using somewhat different definitions from the ones we shall employ. 

Companies must design a system that optimizes liquid assets while lowering outbound operational and logistical expenses to act independently. 

In other words, monetary management assists businesses in ensuring that their cash flow meets their financial responsibilities.

The Importance of Cash Management

Every business needs some sort of financial management competence. Firm monetary management enables a company to satisfy payment commitments, prepare for future payments, and maintain enough corporate stability. 

Organizations monitor and evaluate various critical variables daily, monthly, quarterly, and yearly. 

A cash flow statement is a complete record of a company's inbound and outbound transactions. Companies with a high volume of cash inflows and outflows must manage their cash flow effectively. 

Cash is the fundamental asset that people and businesses utilize daily to fulfill debt obligations and operational expenditures such as:

  1. Taxes
  2. Employee wages
  3. Inventory purchases
  4. Advertising costs
  5. Leases, among other things. 

It is critical to regularly analyze a company's cash flows and goods and services. A company with a functional monetary management organization collaborates with its internal stakeholders. 

Customized banking products and services might assist a company in accelerating the collection and deposit of incoming monies.

What does a Cash Manager do?

One of the three core disciplines of corporate treasury is monetary management. The other two are risk management and corporate finance. The cash manager must anticipate when and how much money will flow in and out. 

Large organizations now use software systems to create and run financial predictions. In a huge firm, it is often hard to inquire about each prospective payment in advance. 

As cash forecasting becomes more difficult, operational choices about which financial services to use fall under the control of this monetary management. 

Finding low-risk strategies to generate money becomes increasingly challenging in times of extremely low or negative interest rates. The cash manager must also deal with foreign exchange.

Cash managers frequently use forecasting models to determine how much money will be available to pay for products and services. They must design and manage a payment infrastructure while also dealing with foreign currencies. 

The cash manager must also consider the expense of this infrastructure, as banks and suppliers do not operate for free.

Examples of Cash Management activities

Diverse sorts of businesses have quite different monetary management requirements. Here are a few examples:

  • In local markets, telecom providers, utility companies, and tax authorities deal with a high number of relatively modest payments. Monetary management is critical to the successful integration and operation of these systems. 

Negotiating low transaction fees is critical for a firm that processes large bulk payments. 

Banks, for example, frequently charge each transaction; telecom providers, utility companies, and tax authorities deal with a high number of relatively modest payments.

  • Companies with several subsidiaries frequently have complicated and disjointed bank account arrangements. As a result, accessible cash is frequently split among many accounts. 

Funds pooling, a corporate banking service, concentrates this distributed cash into a limited number of accounts. 

It is significantly easier to manage internal funding for expenditures from these consolidated accounts, often known as "concentration accounts".

As a result, cash pooling helps businesses to avoid using more expensive external sources of capital.

  • International e-commerce firms with a consumer emphasis will aim to provide the most feasible payment infrastructure. They don't want to lose clients throughout the payment procedure. 

Each nation has its own set of standards, such as credit card networks such as Visa or Mastercard or bank transfer methods. The monetary management team should be involved in selecting and implementing these standards.

  • Companies looking to expand internationally want to be able to make payments anywhere around the globe. 

  • Many firms have many bank accounts, and the cash manager's role is to manage these complicated transactions. 

Operating each bank's electronic banking systems at the same time may be difficult.

The Cash Flow Statement

The cash flow statement is key to a company's cash flow management. The cash flow statement completely details the firm's financial inputs and outflows. 

It consists of

  1. Cash generated by operating operations
  2. Cash paid for investment activities
  3. Cash generated by financing activities 

The bottom line of a cash flow statement reveals how much cash a firm has readily available. The cash flow statement is organized into three sections: investment, financing, and operations. 

The operating portion of cash activities is primarily reliant on net working capital, which is shown on the cash flow statement as a company's current assets less current liabilities. Businesses try to have their current assets surpass their current obligations. 

The other two parts of the cash flow statement are a little simpler, with cash inflows and outflows associated with investing and financing.

Investing and financing activities include real estate investments, purchasing new equipment and machinery, and initiating stock repurchases or dividends.

Internal Controls

Numerous internal controls are in place to manage and optimize the firm's cash flows. Some of the most important cash flow elements for a company are-

  • The average duration of account receivables
  • Write-offs for uncollected receivables
  • Collection Tactics
  • Rates of return on cash equivalent investments
  • Liquidity
  • Credit line management

Investing and financing cash flows are frequently one-of-a-kind financial events that demand unique funding procedures. 

Internal control is a firm's technique of assuring internal and external stakeholders that its resources are being used as intended to achieve the company's goals.

Control activities, which are the policies and processes in place to guarantee that management objectives are carried out appropriately, can help management develop and maintain a strong control environment.

Working Capital

Cash flow management relies heavily on working capital balances. They illustrate how much cash a corporation has on hand to cover its existing responsibilities. 

A decrease in total cash on the bottom line is caused by a negative net change in working capital. 

To ensure that a company's commitments are met, working capital management is the practice of managing short-term assets such as:

There are various things a firm may do to improve the efficiency of its receivables and payables, resulting in increased working capital and improved operating cash flow. The difference between a company's assets and liabilities is its working capital. 

When an organization's current obligations surpass its current assets, its working capital requirements have grown. It may also opt for technology that makes payments more efficient and convenient, such as automatic billing and electronic payments.

Components of working capital

Working capital, in general, comprises the following:

  1. Current assets include: cash accounts receivable Inventory within one year
  2. All accounts payable due within a year and all short-term loan payments due within a year are considered current liabilities.

Working capital is calculated by subtracting current assets from current liabilities. Within the operations area of the cash flow statement, companies typically record the change in working capital from one reporting period to the next.

Suppose a company's net change in working capital is positive. In that case, it means that it has raised the number of current assets available to meet current liabilities, resulting in a rise in total cash on the balance sheet

A negative net change in working capital indicates that a company's current liabilities have increased, reducing its capacity to pay them as effectively.

In the operations section of the cash flow statement, firms typically report the change in working capital from one reporting period to the next. 

If an organization's net change in working capital is negative, it has increased its current liabilities, reducing its capacity to pay them off efficiently.

What are the challenges of monetary management?

Almost half of the senior finance decision-makers believe that their current payment operations technology makes obtaining a clear financial picture of their company challenging. 

With the right technology, they can rapidly match or reconcile their bank statements to client payments, streamlining money movement and making monetary management easier. 

It can be difficult for businesses to keep track of hundreds of thousands of payments at different times. Real-time monitoring is required for organizations to maintain track of their transactions in real-time.

You might discover that your required expenditure is too near to the revenue you're generating. If that's the case, applying for a funding solution for your company could be a fantastic opportunity.

You're missing out on more profits since you don't double-check your overhead costs. There are a lot of excellent accounting software solutions available for you not to use them. 

Find the appropriate match for your company and keep an eye on your bookkeeping to ensure it's up to par using best-in-class software.

Clients will be more likely to pay you sooner rather than later if you provide shorter payment terms. Offer customers a discount if they pay within 8-10 days, rather than the typical 60-day or 90-day payment window.

You must always have proper bookkeeping processes and a credit control system in place. Even yet, it's possible that a client may close their doors or declare bankruptcy. A company loan can be a good way to make up for unforeseen losses.

A warehouse with too much inventory can cause problems for your business. Not inventory but warehousing operations are the best solutions to this problem. Keep a close eye on demand trends and expected sales, then alter manufacturing accordingly.

Causes of Problems with Cash Management

  • Inadequate knowledge of the cash flow cycle: over-purchasing goods and not receiving payment for it can cause a company to run out of money during rapid growth. 

Business management should thoroughly understand the entity's cash inflows and outflows, such as when to pay accounts payable and when to buy goods.

  • Incorrect capital investments: a corporation may invest in projects that do not yield a sufficient return on investment or generate adequate cash flows to justify the investment. 

If this is the case, the investments will harm the cash flow statement and, subsequently, the organization's cash balance.

  • Inadequate monetary management abilities: regardless of their grasp of the challenges mentioned above, managers must acquire the appropriate skills. The capacity to maximize and manage working capital is one of the talents required. 

It may entail establishing discipline and putting in place the necessary frameworks to guarantee that receivables are collected on schedule and payables are not paid faster than necessary.

  • A lack of awareness of the difference between profit and cash: when a corporation generates revenue, it does not always imply that it has already been paid in cash. 

A rapidly expanding corporation that requires a large amount of inventory may generate a lot of revenue yet not generate positive cash flow.

Quick ratio & current ratio

Companies also regularly monitor and analyze liquidity and solvency ratios in monetary management, in addition to internal controls. These ratios are also significant to external stakeholders for a variety of analysis objectives.

The quick and current ratios are the two most important liquidity ratios to consider when it comes to monetary management. 

The quick ratio measures a company's ability to meet current obligations without selling goods or obtaining extra funding. 

The fast ratio is a more conservative measure than the current ratio, which considers all current assets as current liability coverage. The following formula is used to calculate the quick ratio:

Quick Ratio = (cash equivalents + marketable securities + accounts receivable) / current liabilities 

The current ratio includes a little more information. The current ratio is a liquidity ratio that assesses a company's capacity to pay short-term or one-year obligations. 

It explains to investors and analysts how a firm might use current assets on its balance sheet to pay off current debt and other obligations. The following formula is used to calculate the current ratio:

Current ratio = current assets / current liabilities

Solvency ratios assess a company's capacity to meet all of its long-term obligations. Debt to equity, debt to assets, cash flow to debt, and the interest coverage ratio are some of the most common solvency measures.


The monetary logistics are the responsibility of the monetary management. They are in charge of the company's cash flow, knowing how much is available and where it is. 

The cash manager selects how money flows and through which routes and storage units (bank accounts) while also optimizing cost, visibility, control, and availability. 

They regularly work with colleagues in treasury, finance, and accounting, as well as other departments like procurement, sales, and production. 

The cash manager plays a minor but crucial position in his organization; without them, the business would grind to a halt in no time.


Researched and authored by Manal Fatima | LinkedIn

Reviewed and Edited by Justin Prager-Shulga LinkedIn

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