Cash Management is a broader term that relates to the collection, concentration and disbursement of cash. The basic objective of cash management is to manage the cash balances of an enterprise or an entity so as to maximize the availability of cash not invested in fixed assets or inventories in such a manner to avoid the risk of insolvency.
Giving away value
Most businesses give away the value in their core business because it becomes so familiar. This misses substantial profit improvement.
The main factors that include the cash management are the company’s level of liquidity, managing its cash balances, margins, timing of activity and the short-term investment strategies.
Thus, managing the cash flow is the most important job for the business managers. If in any case, the company fails to pay an obligation when it is due just because of the lack of cash, the company is actually insolvent. The main reason behind the company facing the bankruptcy is simply insolvency. This is why the company facing such dire consequences must manage their cash with care and cash management on the other hand is not only about just preventing the bankruptcy but also to increase the profitability and to reduce the risk to which the firm is exposed.
Keep your options open
Companies suffering from cash flow problems have no margin of safety in case of unanticipated expenses. They can also face trouble in case of unanticipated expenses and options become very narrow. This is to true ironically that borrowing money is too easy but managing the assets and the cash flow, even the liquid asset is really tough. Cash is the lifeblood of a business. Managing it efficiently is essential for success.
A successful cash management will include tabulating realistic projections that are aligned to a realistic plan, monitoring collections and disbursements, establishing effective billing and collection measures, and adhering to budgetary restrictions.
How to make Cash Collection and Disbursement
Cash collection systems aim to reduce the time it takes to collect the cash that is owed to a firm. Some of the sources of time delays are mail float, processing float, and bank float. The payment process and depositing the cash in the account will take some time. And even if the payment is depositedd in the bank, it cannot turn into a liquid immediately. These three “floats” are time delays that add up quickly. And they can force struggling or new firms to find other sources of cash to pay their bills.
How to Manage Cash in Trouble Times
You need a new plan. During downturns in the economy, declines in sales and poor cash management can spell the death knell to a small or startup business. In tough times like recessions, banks may constrain the revolving credit or short-term loans that businesses often rely on while solving the cash management troubles.
For temporary cash problems in the business, here are some simple steps to follow in your business plan:
Understand the core business: Get pricing and the business value add right. Get the marketing right to sell that value.
Create a quorum and team and make the link between their actions and cash clear.
Create a realistic plan and from that a cash flow budget that charts finances for both the short term (30-60 days) and longer term (1-2 years).
Redouble efforts to collect outstanding payments owed to the company. Businesses should also include a payment due date.
Identify invoicing gaps and pricing errors and resolve delays in invoicing.
Consider compromising on some billing disputes with clients..
Closely monitor and prioritize all cash disbursements.
Contact creditors (vendors, lenders, landlords) And attempt to negotiate mutually satisfactory arrangements that will enable the business to prevent its cash shortage. And get joint ownership of vendor inventory to create a win-win situation.
Liquidate superfluous inventory.
Assess other areas where operational expenses may be cut without permanently disabling the business. Such as payroll or non-strategic goods and/or services with small profit margins.