Introduction
Techniques for effective cash management and short-term financing methods are both equally important within the business world. Both functions remain critical to the success and potential profitability a company may have. Finance or accounting manager must be well-versed in both areas to manage cash and short-term financing to maintain a competitive market share and ultimately increase the company’s profitability. When cash management is used efficiently it will allow a company to eliminate excess funds not generating revenue while the effective use of short-term financing methods can secure funds for maximum profitability and other operational costs.
Cash Management Techniques
Successfully implementing cash management techniques allow companies to remain in “control over the receipt and payment of cash so as to minimize non earning cash balance” (Block & Hirt, 2005, p. 174). Since childhood, parents have tried to instill the values of a dollar and the importance in saving this money for future events. In the corporate world, financial managers believe the less cash the company has on hand the better. Companies must have cash readily accessible to cover needed transactions, bank payments and in case of emergency situations. The successfulness of cash management is dependent on having enough cash to cover these areas without getting caught with limited cash on hand. A financial manager in charge of a company’s cash must remember the importance of allocating this cash in whatever way possible so it can benefit and improve the company the most. The first step to improving cash management is maximizing cash flow by making certain that collection, billing and payable systems are operating efficiently.
If a company is able to bring in the cash as quickly as possible and hold onto that cash as long as possible, then they are perfecting the art of cash flow. For a company to do this, they must remain aggressive on overdue invoices and make...