Cash Management refers to the efficient management of cash in a business. Most businesses strive to keep cash on hand at a minimum. A business should strive to maintain adequate funds for transaction purposes and compensation balances. Short-term financing includes funds that are used by a business to run their day-to-day operations including inventory ordering, payment of wages, and purchasing of supplies. Short-term financing essentially provides capital deficit businesses funds for a short-term period of a year or less (Ross, 2001). This paper will compare and contrast various cash management techniques, as well as, compare and contrast the various methods of short-term financing.
Cash Management Techniques
A company’s biggest challenge is in the management of cash flow. Cash moves through a business in cycles - from the receipt of cash to the payment of a company’s bills. In cash management, the overall goal is to speed up the inflow of cash and slow down the outflow. Cash management techniques can ensure that a business makes the best use of cash on hand. Efficient management of collections and disbursements can assist in managing the flow of cash through a business.
One technique to assist in managing cash flow is achieved by improving
collections or account receivables. A popular collections processing service used in the
industry is lockbox services. Lockbox services allow for a low cost option of expediting
check processing. A lockbox service establishes a post office box for a business that used
primarily to receive and process payments. A lockbox service improves timeliness of
processing payments (cash receipts) which simplifies the payment process. With lockbox
payment services, incoming receipts are generally picked up at the earliest possible moment,
and subsequently deposited directly into a company’s bank account.
Extending disbursement float is another...