Cash management is essential in establishing a company’s financial health and demonstrating solvency. Collectively, it is how a company collects, disburses, and invests its cash. This can include short-term investments, collecting on accounts receivable (AR), and making good on expenses and liabilities.
Why is Cash Management Important?
The more closely a company scrutinizes the inflow and outflow of cash, the better prepared it is to operate efficiently and absorb unexpected liabilities or external market conditions. Effective cash management enables a company to cover expenses, make short-term investments, make good on shareholder responsibilities, and keep adequate cash in reserves.
To optimize cash management, companies will, for example, try to shorten the time it takes to collect on accounts receivable. Other strategies include:
- Negotiating terms with suppliers
- Automate accounts receivable follow-up