Cash management relates to an effective way of managing cash. It is a process of collecting and managing cash flows. Cash management is important for both business and individual.
In business, it is a key aspect of an organisation’s financial stability. For individuals too, it is essential for financial stability.
Cash is the primary asset individuals and companies use for operating expenses, e.g., employee salaries, taxes, inventory purchases, rents, etc. Excess cash often go towards dividend distributions.
The importance of cash for individuals is equally important as it helps in managing current expenses and future savings.
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The various techniques used to practice cash flow management.
They are as follows:
|Accelerating collection of accounts receivable||This improves cash inflow and increases cash liquidity by collecting the debts and dues from the debtors|
|Stretching of accounts payable||One of the ways to manage cash is by extending the payment of dues. It can be done by acquiring an extended credit period from the creditors|
|Cost-cutting||This technique looks for ways of reducing the company’s operating cost in order to maintain a good cash flow in the business.|
|Regular cash flow monitoring||Cash management keeps a check on the cash inflow and outflow. It reduces debts and makes the organisation’s financial position sound.|
|Wisely using banking services||Cash deposits, credit line, lockbox account and sweep account are some of the ways to be used efficiently.|
|Upgrading with technology||We all could agree that digitalisation makes it convenient to maintain the financial database, spreadsheets, log, etc. This helps in assessing from anywhere anytime.|