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Cash Management Basics

What is Cash Management?

Cash Management refers to the day-to-day administration of managing cash inflows and outflows for a business. The ultimate goal of cash management is to maximize liquidity and minimize cost of funds, and there are many tools that help to streamline these processes.

Accessing and Maximizing Cash

When financial professionals discuss Cash Management, they’re usually referring to services such as wire transfers, sweep accounts, merchant services, and business credit options. Most of the time, cash management can be integrated into your company’s online banking. That way, you and your business administrators have greater control of and access to your cash flows.

Maximizing cash can include taking advantage of a Sweep account. A Sweep account automatically “sweeps” excess funds from a business checking account and into an overnight investment account at the close of business each day. This allows the business to earn interest on otherwise idle funds.

Collecting Payments (Collections)

Critical to cash flow is collecting payments from customers. There are a variety of ways to do that, including:

Sending Payments (Disbursements)

As with collections, there are an array of tools that help a business send out payments, including:

Cash Management Guidance

During challenging economic times – when sales decline – it’s critical to keep a close eye on your cash management processes and procedures.  In order to remedy cash flow problems, there are many steps that can be taken,  including offering small discounts for prompt payment, creating a realistic cash flow budget for the short term (1-2 months) and the long term (1-2 years),  increasing efforts to collect outstanding payments, assessing all operational costs, monitoring and prioritizing cash disbursements and negotiating contracts with creditors. 

Cash management analysis is necessary in order to address shortfalls, increase revenues, and cut spending.  You can also bring the plan to your local banker who can help to evaluate your strategy.

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