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Cash Management

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Motivational speaker Natasha Munson beautifully expresses that “Money, like emotions, is something you must control to keep your life on the right track.” She subtly hints that cash management is integral to success and security.

Everyone reading this is likely to have their personalized version to the above question. And, rightly so, for it is said that Cash is King.

What is the Importance of Cash?

For individuals, cash and its management become an integral part of personal finance. People strive to make necessary cash related decisions and its distribution across expenses, savings and investments.

When it comes to businesses, cash is the primary asset which companies (just like individuals) use to settle debt obligations and for operating expenses such as taxes, employee salaries, inventory purchases, advertising costs, and rents.

Cash is further used as investment capital for long-term assets as well as non-current assets. Besides, excess cash often goes towards dividend distributions.

Now that we have understood the significance of cash from corporate perspective, it is imperative to understand that companies must manage cash well to maintain adequate business stability.

In this backdrop, we bring to you everything that you must know about cash management.

What Is Cash Management?

From business perspective, Cash Management is the process which describes the collection, handling, control, and investment of the organization’s cash and cash equivalents. Simply put, it refers to collection and management of cash flows (inflows and outflows).

The concept of cash management revolves around efficient management of planned expenditures. Having said so, it is focused on operational efficiency as well as process optimisation.  Understanding it in simple terms, cash management is all about optimising the flow of money that comes in from customers- some money may go into savings, and other to pay the bills.

It is one of the most vital processes to any organization, key component of a company's and individual’s financial stability and forms the crux of a total wealth portfolio.

What Is The Objective Of Cash Management?

It is essential to maintain a sound cash flow position in any company. Adhering to this fact, the most important objective of cash management is to ensure optimum utilization of a company’s liquid resources.

Why Is Cash Management Important?

As deciphered, cash management is the process of collecting and managing cash flows. This process is important for both individuals and companies.

In business, cash management is a crucial component of the company's financial stability. Similarly, for individuals, cash is essential for financial stability and is a vital part of a total wealth portfolio.

Besides, cash management is a requisite for all forms of organisations regardless of their type, size, and location. It helps in maximizing profitability by optimizing cash utilization. Besides, it helps in creating provisions for future contingencies such as economic slowdown, bad debts, etc.

The below points shed more light on the importance of cash management from business perspective-

  • It helps to maintain ample liquid cash to meet routine expenses, which is possible only via effective cash management.
  • Cash management is integral to ascertaining the ratio of debt and equity.
  • Unforeseen expenses are better coped up with if cash is well managed. For example, cash surplus will be a lifesaver if there is a breakdown of machinery or a likewise calamity.
  • Cash management engages the company to invest the idle funds in the right opportunity and the right proportion.
  • It creates an appropriate balance between the cash in hand and investment.
  • Efficient cash management is believed to be a great tool to avoid insolvency.

What Are The Shortcomings Associated With Cash Management?

Though cash management is an inevitable part of business organizations, it does come with a few flaws-

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How Can One Practice Cash Management?

Individuals make use of a number of tools for efficient cash management. Few of them are- Short term instruments like money market instruments and mutual funds, treasury bills, certificate of deposit (CD), checking account, savings account and long-term low-risk savings instrument.

Businesses, on the other hand, aim to follow two basic principles-

  • Maintaining lower levels of inventory
  • Fast-tracking the procedure of cash receivables

The cash flow statement is a key element of corporate cash flow management as it records all of the business cash flows- operating, investing, and financing. Companies also regularly monitor and examine liquidity and solvency ratios within cash management.

Interestingly, several companies opt to outsource part or all of their cash management responsibilities to service providers, who report to the company on a daily, monthly, quarterly, or/and annual basis.

What Does A Cash Manager Do?

Business managers, corporate treasurers, as well as chief financial officers are ideally the key individuals accountable for general cash management strategies, cash-related commitments, and stability analysis.

Let us cast an eye over the key tasks that a cash manager performs-

What is the Significance of Cash Management Across Sectors?

Quite naturally, different types of companies have very different needs for cash management activities. However, the importance of this process is equally vital across companies and sectors. Let us look at a few sectors and understand how they ideally practice cash management.

  • Telecom operators, utility companies, and tax authorities- these businesses deal with large numbers of relatively small payments in local markets. The full integration of the systems (reconciliation) is ideally automated.
  • International e-commerce companies- these businesses offer the most convenient and contemporary payment infrastructures.  Cash management for these ideally should be involved in choosing and implementing country-specific standards like Visa or Mastercard or bank transfer schemes.
  • Companies with different subsidiaries- Corporate banking services, such as cash pooling is one of the efficient cash management measures as it concentrates spread out cash over many accounts and makes it easier to organise internal funding for expenditures.
  • Companies that aim to expand- These companies hold accounts with multiple banks that could cause complex international payments. Recent Payment Services Directive and specialized softwares should be looked at in these cases.


Managing cash is a contemplative process and necessitates a lot of analytical thinking. However, one should understand that though cash management helps solve problems pertaining to the deficiency in working capital, it is not a substitute for profit and loss statements.

In closing, we provide a few ideas that businesses can adhere by to ensure effective cash management-

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