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All Things Cash Management

all things cash management

What is Cash Management?

Cash management is also known as treasury management and encompasses processes associated with money, including the acquisition, consolidation, and expenditure of cash. Proper business cash management increases bottom line profitability and decreases the risk of bankruptcy.

Cash management enables businesses to pay their employees and operating expenses on time, avoiding insolvency. Insolvency, defined as the inability to pay a bill when it is due, is a top reason for businesses going bankrupt.

In fact, over 80% of small to medium sized businesses fail due to cash management issues. Whether your business is a small business or large chain, cash management skills increase the likelihood of long term success and bottom line profitability.

In the business setting, cash management is overseen by business managers, chief financial officers, and corporate treasurers who closely monitor monetary related business processes including-

  • Cash flow
  • Accounts payable
  • Accounts received
  • Risk management
  • Wealth management
  • Short term investment
  • Long term investment
  • Treasury bills
  • Certificates of deposit
  • Online banking
  • Business checking account
  • Business savings account
  • Debit card and credit card
  • Money market account

The Importance of Cash Management

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Cash is your business's primary asset for paying off debts and funding operating expenses. There are many operating expenses for every business to consider that can range from advertising fees to employee salaries.

Paying operational expenses is a non-negotiable part of any business. If your employees, rent, utilities, or various other operational expenses are not paid, your business will fail. Equally important are debt payments, which lead to business bankruptcy if not paid in a timely matter.

The main goals of cash management solutions are not simply to avoid bankruptcy and pay operational expenses when they are due, but also to maximize business capital. Risk management techniques help business cash management professionals navigate short term and long term investments while keeping liquidity levels stable.

Effective cash management seeks to always maintain ideal liquidity levels in case of unexpected expenses. Liquidity additionally allows for business expansion and innovation opportunities.

However, business owners must be wary of spending new york online sports bettingly acquired cash too swiftly on expansion and innovation objectives. Growing a business too swiftly leads to many businesses being unable to keep up with financial obligations and going bankrupt as a result.

Getting cash management processes under control and optimized is not an easy task, but it is a critical one. Thankfully, proper risk management and cash management solutions can greatly assist in business cash management processes.

Cash Management Responsibilities

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Treasury management covers so many different monetary processes at a business, oftentimes simultaneously. Responsibilities associated with cash management range from creating cash flow statements to monitoring short term and long term investments.

Ultimately the main responsibility of cash management is to keep your company in business and avoid insolvency. Beyond the baseline of avoiding bankruptcy, cash management responsibilities that proactively increase profitability are extensive and complex.

If managed well, your business will have more opportunities for development, innovation, and growth. Although proper cash management is a large responsibility, it is well worth the rewards your business will reap if executed properly.

One main cash management tool that is commonly used by business professionals is a cash flow statement. A cash flow statement is a comprehensive report of every cash inflow and outflow transaction. The main objective of a cash flow statement is to accurately display the amount of liquid cash a company has at any given point in time.

Operating, financing, and investing activities are the three different parts of a cash flow statement. Operating activities calculate your business's net working capital which is the difference between the current liabilities and the current assets your business possesses.

Calculating your business's net working capital requires you to define assets and liabilities. Assets include available cash, accounts receivable within a calendar year, and inventory. Liabilities include accounts payable and short term debt payments due within a calendar year.

Both the investing and financing sections of the cash flow statement examine cash inflows and outflows. These two sections reflect business activities such as real estate investments or dividend payments.

Proactive wealth management pays attention to the rates of return on investments and the effectiveness of collection processes. Evaluating your business bank account regularly including negotiating the interest rate and requesting credit card line increases are helpful cash management solutions.

How to Improve Your Cash Management

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Proper cash management is a complex balancing act that necessitates precise planning, constant evaluation, and consistent maintenance. Best practice tips for improving your business's cash management include-

1. Adjust payment terms- Keep your business's cash flows under control by reevaluating and negotiating payment terms. Ideally, set up payment terms with your vendors that allow 60 days for the payment to be completed.

Then, request your customers to pay their billed invoice within 30 days of service. This provides a 30 day buffer for your company to collect any overdue payments without missing your own important bills.

Businesses who are paid immediately by customers upon providing a service or product should still consider adjusting their payment terms with their suppliers to keep liquid cash levels high whenever possible. Additional liquid cash levels can be used for business growth and development when appropriate.

2. Acquire payments
- Collecting payments from customers who do not pay immediately for your services or products can be tricky and uncomfortable. On one hand, you want to preserve a positive, long term relationship with your customers.

On the other hand, you do not want to be taken advantage of by your customers, or not receive your payment in a timely matter. If difficulties arise with your customers being able to pay on time, consider the following tips-

  • Offer mobile payment options
  • Require an initial deposit for larger projects or orders
  • Obtain outstanding payments due
  • Provide discounts for faster payments
  • Add interest for past due payments
Make sure your business is supplying invoices in a timely matter to your customers or clients. Always clearly state the due date and specific terms on the invoice in order to increase the likelihood of an on-time payment.

3. Purposefully spend- Both short term and long term business plans must focus on careful spending. The new york online sports bettinger your business is, the less room for error you generally have, but businesses at every life stage must spend their money prudently. Perform a full cost basis analysis when making important, large investments. For example, a business may save themselves money in the short term by leasing expensive required equipment but over the long term may find they will save money purchasing their own equipment.

4. Have a backup- Cash reserves can save your business from bankruptcy in a tight pinch. A contingency plan is another risk management tool that evaluates and prepares for various worst-case scenarios your business could face in the future.

5. Refocus- A hyper fixation on profitability can greatly hinder your business's growth. Focusing on cash flow is much more realistic than focusing on profitability alone when determining your business's success.

6. Forecast sales- Sales forecasting helps your business purchase the correct amount of inventory items to avoid under purchasing or over purchasing, both of which have consequences.

While under purchasing can lead to lost potential sales, over purchasing ties up your cash flow. If your business does have an excess of inventory it is wise to sell it, even at a discount, to get your cash flow back on track.

Problems with Cash Management

Treasury management problems can have huge consequences for your business, even potentially leading to bankruptcy. Common treasury management issues include-

  1. Cash flow cycle- Misunderstanding the cash flow cycle can result in over purchasing inventory products and not keeping enough liquid cash available. If anticipated payments to your business are delayed or not completed, your business may end up not being able to pay its own debts or operating expenses.

    Various financial statement tools may reflect high profits when in actuality, payment has not yet been received by your business. Making decisions based on reported or projected profits instead of cash payments received can lead to problems for your business.

  2. Bad investments- Both short term and long term investments should always be considered carefully with a vigorous risk management process. Remember, investments are supposed to sustain your business and produce more capital overtime, not drain your available resources.

    An alternative for more risky investments is a money market account, business checking or savings account that offers a higher interest rate than a bank account that is more traditional. Accounts that provide a debit card offer accessibility to liquid cash when your business is in a pinch.

  3. Lack of management solutions- Lack of treasury management solutions can result in insolvency and eventually bankruptcy. Your business must maintain a healthy balance between accounts payable and received payments.

Benefits of Successful Cash Management

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Some businesses choose to utilize a third party for their cash management, appreciating the outside customer service and support provided. Whether your business chooses to outsource cash management or oversee it inhouse, benefits of successful cash management include-

  1. Risk management- No business wants to accuse their employees of theft, but the reality is that employee theft does happen and is a serious issue. It is estimated that employee theft accounts for 75% of industry losses for quick-serve restaurants.

    The $36 billion lost to employee theft can be decreased significantly through cash management solutions including armored cash transportation and smart safes. Keeping a reasonable amount of money available at your restaurant decreases the chances of employee theft and robbery.
  1. Decreased downtime- Any business owner knows that time is money. A safe malfunction or financial processing issue can majorly decrease business effectiveness and even result in lost sales.

    Consistent monitoring and remote diagnostic capabilities decrease the need for in-person maintenance visits. Many money management solutions have built-in tutorials that streamline and simplify the employee cash management training process.

  2. Customization- If your business does decide to invest in a third party cash management provider there are many customizable management solutions available. Cash management providers have insight and experience on how to keep cash flows ideal and as safe as possible.


  • Cash management is also known as treasury management and includes all monetary processes. Business cash management aims to increase profitability and decrease bankruptcy risk.
  • As a result of cash management issues, 80% of small to medium sized businesses fail.
  • Business managers, chief financial officers, and corporate treasurers are responsible for monitoring cash management processes for businesses.
  • Operational expenses and debt payments must be made on time, which requires liquid cash availability. Additionally, liquid cash provides opportunities for business expansion and growth.
  • A cash flow statement is a main cash management tool and includes three parts- operating, financing, and investing activities.
  • Best practice tips for improving cash management for a business range from adjusting payment terms to forecasting sales.
  • Treasury management solutions and risk management processes can be used to decrease cash management mistakes.
  • The benefits of successful cash management include better risk management control and simplified cash management training processes.