For businesses of all scales and sizes, managing the amount of cash they have in their hand and on their name is essential, and to that end, effective cash management is central to ensuring smooth operations and survivability. Now, this is a system that deals with the inflow and outflow of cash in a systematic manner, and nowadays, there are professional companies and services that can help your business achieve a top-notch cash management environment.
It must be pointed out that treasury management is a term that is used quite leniently in a non-financial setup, but there are subtle differences between the two of them. In fact, treasury management is a wider concept in most areas, and while both of them offer benefits like statutory compliance, dictate the various payments and recoveries, etc., there are certain noticeable differences as well.
In this blog, we will be taking a look at what cash management in businesses stands for, some of the primary roles that they address and fulfill, and as modern businesses, why you just cannot do without them. So, let’s get started.
Cash management: Definition.
To put simply, cash management is the action of managing the various cash inflows and outflows that a business is subjected to on a regular basis, and this is an important step of the entire process that can help businesses survive in this cut-throat world of competition and one-upping each other.
For most enterprises, keeping track of each and every transaction isn’t that easy, and to that end, financial institutions like banks step in to fulfill the role. In certain cases, their jurisdiction can extend beyond the realm of holding the cash for the clients as they can be entrusted to make payments on a timely basis as well. Comprehensive statutory compliance with the various legal requirements is critical in this case as well, and banks and facility management companies are well-versed in doing so as well.
Cash management: The steps involved.
This is a process that isn’t exclusively limited to holding the cash, but estimating, generating, and tracking the flows effectively, and that too within a specific time frame, thereby ensuring adequate liquidity and financial health. Now, when combined with facilities like treasury management, generating returns on stored capital through investing activities can be a reality as well.
There are a few steps and processes that are involved in every effective and efficient cash management regime, so let’s take a look at those.
- The first step involves deciding on the right type of figures and budgets, something that would help determine the inflows and outflows in the future.
- Several cash flow management strategies can be implemented by the business to improve the overall business situation, including the offering of cash discounts if vendors pay the bills before the due date.
- The payment timelines and strategies are to be discussed with the vendors and stakeholders to ensure smooth operations throughout the financial year.
- The balance cash can be invested across securities and financial instruments, something that would help generate certain passive income for the company, but it must be borne in mind that the risks involved should be minimal.
- The facility management or financial company must keep an eye out for the exact trajectories that are being taken by the operations, and as and when the need arises, make the requisite changes and modifications.
The essentiality of cash management to businesses.
All this chatter about managing the available cash and cash flows begs the question, how can it help my business? Well. let us take a look at some of the top reasons why you must invest in good management operations for cash in 2023.
Inventory control: A business’ inventory is directly related to the cash flows that it is able to generate on a regular basis. If a business finds itself in a situation where the excess inventory is not released, cash flows may be limited. Therefore, controlling the inventory that a business stocks and sells is crucial.
Receivables administration: In several business situations, especially ones that are concerned with B2B dealings, there’s a considerable lag between the exchange of goods and the cash, and this lag can quite easily transpire into cash shortages. Keeping track of such receivables cannot just help maintain a decent amount of cash on hand, but adhere to statutory compliance requirements as well.
Payables administration: Just as receivables must be tracked on a regular basis, the payables must be tracked and paid regularly as well. Moreover, cash discounts play a role in the overall payment ecosystem as well, so that is something that cash and treasury management companies must keep an eye out for as well.
Modern businesses face specific sets of challenges that must be effectively addressed effectively and cash management is just one of those avenues. Nowadays, banks and facility management companies have stepped up their game when it comes to offering such services, and if you are looking for the same for your business, a quick search online should help you zero in on some of the best options there are.