The Kind Tips – Tips for Life, Study, Work and Entertainment – 6 Cash Management Tips

6 Cash Management Tips

6 Cash Management Tips

Cash management activities are concentration, collection and disbursement of cash-including measuring and managing liquidity levels, short term investments and cash balances. The term cash, includes but might not be limited to currency, checks such as personal, business, travelers, cashier’s, money orders, credit and debit cards, wire transfers and electronic payments, according to the State University of New York at Brockport. It is the responsibility of a senior financial executive of an organization to take care of the cash management. Based on different sizes of companies, the one in charge may be a CFO, accounting manager or an outside accountant. If some good practices in cash management can be employed, the optimum amount of cash could be kept while effective controls could be maintained.

1. Support.

Rel Consultancy suggests the entire senior executive team to be dedicated to set working capital management as top priority. As working capital management requires full accountability, and it may also impact many functions of an organizations including sales and accounting, a senior executive should be focused.

2. Strategy segmentation.

Rel Consultancy also suggests not to provide same terms to all parties. Instead, reward stakeholders, for example, provide the most valued customers with the best terms. The segmentation approach calls for educating managers about cash management as well as the company’s approach.

3. Incentives.

If employees are able to reduce working capital requirements, then they should be rewarded because more cash can be freed up, according to the recommendation from The Hackett Group. A reward program should be designed and introduced to employees and managers who can have an impact on working capital requirements. Monitor the effect of the reward program.

4. Automation.

When feasible, try to automate optimized cash process. Sometimes it is very difficult to manage the changing to a new system, simply because people tend to resist changes, hence automation could accomplish a change in cash management approach more quickly because it forces compliance.

5. Metrics monitoring.

Management of cash can’t be informally pursed, but needs a discipline and organized approach. The critical step is the identification and monitoring of the key metrics that have positive or negative impact on cash management results. For an example, you should track collection days, which measures how long it take to get paid. Additionally, you should check inventory turnovers because slow moving inventory impedes the flow of more working capital.

6. Receivables.

Try to lower the receivables level actively. One dollar more tied up in receivables means one dollar less available in cash.

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