What Is The Concept of Cash Management?

Dec 01, 2023 By Triston Martin

It is referred to as treasury management, which is the procedure of collecting and managing cash flows from the operational or investing operations of a business. In the business world, it's one of the most important aspects of the stability of a company's finances. Cash management is crucial for businesses and individuals because it is an important element of stability in the financial system. Instruments that finance cash management include the money market fund, Treasury bills, and certificates of deposits.

Individuals and companies offer various solutions in the financial market to assist in all aspects and types of management. Banks are generally major service providers for financial services. There are various cash management solutions suitable for businesses and individuals looking to make the most on cash assets or the most efficient utilization of cash.


Cash is the main source of funds that businesses and individuals utilize to fulfill their obligations regularly. For businesses, there is an abundance of cash flows and outflows that need to be managed with care to fulfill obligations for payment, plan for future payments, and ensure stability for the business. For individuals, keeping cash balances and making a profit from idle cash are typically the biggest issues.

In corporate cash management, commonly referred to as business managers, treasury management, corporate treasurers, or chief financial officers are generally the principal people responsible for the overall strategy of cash management, including cash-related responsibilities and stability analyses. Many businesses outsource a portion and/or all cash management tasks to various service companies. Many important metrics are tracked and evaluated by the cash management executive on an ongoing and monthly, quarterly, and annually.

A cash flow report is a key element of control of cash flows. Although it is typically shared with all stakeholders, certain parts are monitored and maintained internally daily every quarter. A cash flow report documents all the company's cash flows. It covers cash from accounts payable and cash paid to account payables, money paid to invest, and cash received to finance. The top section of the balance sheet shows the amount of cash a business can access.

A Cash Flow Statement

A cash flow report can be divided into three sections that are operating, investing, and financing. The operating part of cash operations will fluctuate based on the net working capital, which is stated as cash flow statements in terms of a company's current assets and less current liabilities. The two other parts that make up the statement of cash flows are straightforward, with cash outflows and inflows related to financing and investing.

Internal Controls

There are a variety of internal controls that are used to control and control efficient business cash flow. The most important cash flow concerns are the length of accounts receivables and collection processes, writing off receivables that are not collected, the liquidity rate and the return on investments in cash equivalents, and credit line management operational cash reserves. Cash flows related to operations primarily focus on working capital, which is affected by accounts payable and accounts receivable changes. The financing and investing of cash flows are typically extraordinary cash events requiring specific cash flow procedures.

Working Capital

A company's working capital represents the sum of current assets less current liabilities. Balances of working capital are essential to cash flow management since they reveal the number of assets an organization has to meet its current obligations. The goal of companies is to have current balances of assets that are greater than current liabilities balances. If current liabilities are greater than the current assets, a business would likely have to tap reserves for its payment of payables.

Current assets and fewer current liabilities create working capital. In the cash flow statement, businesses typically report the amount of working capital that has changed from one reporting period to the following in an operating portion of their cash flow statements. If the net change in working capital is positive, the company has increased the number of its current funds available to pay for current liabilities, increasing the overall cash available at the bottom of the line. If a net change of working capital goes negative, the company has accrued more current liabilities, which decreases its capacity to pay them in a timely manner. The negative change to working capital decreases the amount of cash at the bottom of the line.

There are many ways a business can take to improve receivables and payments efficiency, eventually leading to greater working capital and a better cash flow for operation. Businesses that use invoice billing could reduce the number of days payable or offer discounts to customers who make rapid payments. They could also utilize technologies to facilitate quicker and simpler payments, including automated billing and electronic payments. Modern technology for managing payables could also prove beneficial. Businesses can choose to use automated bill payments or make direct payroll deposits to increase the efficiency of their payables.

Related Articles