Introduction
This document will provide information in reference to the definitions of cash management and short-term financing along with comparing and contrasting techniques of each.
Purpose
In the world of business it is very important for any business owner to understand and know about cash management techniques. It is equally as important for these same audiences to know and understand the importance, risks, and available short-term financing techniques.
Cash Management and Techniques
Cash management is the process of monitoring, analyzing and adjusting a business’s cash flows. The most important aspect of running a business knows all aspects of the company’s cash flow management as a way of avoiding cash shortages. By conducting cash flow analysis, a company will know where cash flow shortages may occur and in those cases, they can turn to short tem financing as a means to correct those short-term cash shortages. Some techniques that could be used to improve cash flow are: creating and maintaining a budget, managing accounts receivable and accounts payable.
When a company creates and uses a budget, the company is creating a plan to record all cash inflows and outflows over a short period of time. Another great aspect of creating a budget is it will allow the company to identify trends and changes in forecasted and actual cash flows. This technique will allow a company to prepare for shortages and hopefully be able to plan accordingly.
Managing accounts receivable is a very important cash management technique. Accounts receivables are assets that reflect the bills that are owned by one’s company. As a result you are able to make credit on these assets. It is very important to have a well established account collection system in place, because by collecting your company’s accounts receivables, your company’s cash flow will be greatly improved. It is also very important to make sure you stay on top of customers who pay late. It is important to...