Cash Management
One of the most critical functions of a company’s financial manager is that of cash management. Since inventory and demand for cash change on a daily basis, the financial manager must be knowledgeable in the most effective ways to manage the cash a firm has, along with the most efficient ways to obtain cash as needed. Both cash management and short term financing will be discussed throughout this paper. Managing your working capital, managing business risks, and monitoring costs and inventory are cash management techniques to be discussed. Managing working capital is very essential in cash management. A company’s working capital is closely related to the flow of cash into and out of the business.
“Working capital management involves the financing and management of the current assets of the company. The financial executive devotes more time to working capital management than to any other activity” (Block & Hirt, 2005). Current assets change daily driving short term managerial decisions regarding items such as inventory and funding. These short term decisions on working capital determine the long-term future of the company.
The goal of cash management is to keep cash balances as low as possible while maintaining sufficient funds for transactions purposes and compensating balances (Block & Hirt, 2005). The financial manager attempts to use cash management techniques to hasten the inflow of funds and defer the outflow of funds by managing the company’s float. Float is the difference between the amount of money recorded in a company’s financial statements and the amount credited to the company by the bank. Float is created from delays in mailing processing and clearing checks. To compensate for float one method of cash managemen ...