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Cash Management

Cash management refers to the process of collecting, managing, and utilizing cash flows efficiently to maintain liquidity, ensure a company can meet its short-term financial obligations, and maximize the return on surplus cash. Effective cash management involves forecasting cash inflows and outflows, optimizing working capital, managing cash reserves, and making investment decisions for surplus cash. Companies use various tools and strategies, such as cash flow forecasting, receivables management, and short-term investments, to ensure they have the right amount of cash available when needed.

Example

A company implements cash management by closely monitoring its daily cash balances, speeding up collections from customers, and delaying payments to suppliers when necessary to optimize cash flow.

Key points

• Cash management is about collecting and managing cash flows to maintain liquidity.

• It involves forecasting, optimizing working capital, and investing surplus cash.

• Helps ensure businesses can meet financial obligations and maximize cash use.

Quick Answers to Curious Questions

Effective cash management ensures that a company has enough liquidity to cover short-term expenses, meet obligations, and invest excess cash for returns.

Strategies include cash flow forecasting, receivables management, and short-term investments.

Poor cash management can lead to liquidity issues, missed payments, and financial instability, potentially causing a company to default on its obligations.