Cash Management

Effective cash management strategies are used throughout the business world on a daily basis. Many companies chose to implore tactics and strategies to help maximize their cash holding in a variety of different ways. The modern world of business today makes it unnecessary to physically hold onto large sums of cash. Many strategies used by companies are geared around investing this cash in to what is commonly known as short-term investments. How much cash is invested and how much cash is retained is a decision that requires a lot of not only business knowledge, but also knowledge of the overall marketplace at any given time. One of the most crucial factors in determining how much to retain and how much to invest is being able to forecast future revenue and expenses. A company can potentially jeopardize its operation if they commit to much, or even don't commit enough. Money left lying around is not as beneficial as some might think.

Managing cash is done according to the cash-flow cycle. That technique relies on the means and methods of how money is collected and disbursed as well as how the banking system keeps up with it. (Block and Hirt, 2005) The idea behind cash flow is becoming increasingly more efficient in ways yet also more complicated at times due to modern advances in technology. Some examples of increased efficiency levels can be attributed to the creation of the virtual environment/internet. It has become common practice for people to purchase and spend money over the Internet using credit cards. These companies intern pass everything along to the credit card companies electronically and before you know it the company receives a check for all the products sold. These virtual stores have even taken it one step further. They have created these online networks throughout their organization and set them up to link up with each other and balance all the transactions out automatically and the end of the day, week, month and automatically deposit excess money into specified investment accounts. (Block and Hirt, 2005) With all this increased efficiency levels and strategies being put to work, it has become more and more difficult to monitor the safety as well as privacy/confidentiality of the consumer as well as the company and for this reason technology has made financial dealings more complicated and intricate. Computer fraud is forcing companies to spend a lot of money, time, and resources on securing themselves and their customers.

Another aspect of cash management is what techniques companies use to "make the money work for them." Many companies chose to include money that hasn't been physically received on some of their current financial statements to make themselves look financially stronger and well off. Companies often times write checks that exceed their cash on hand (in the bank account), but they rely on another check to clear and get deposited into their account before the big check gets deposited. The in a sense are taking a gamble to avoid any late penalties, fees, etcÐ'... that may be assessed to them if they don't pay on time.

Companies often times attempt to speed up their collection process while slowing down their payment process. Many companies today use technology to help speed the collection aspect of things up. Companies now use electronic funds transfers as well as automated clearinghouses to help eliminate the time lost due to third parties such as snail mail. And one of the big benefits for companies who chose to use these strategies is that it actually saves them money. Many of these processes are cheaper to use then the old way of doing things. (Block and Hirt, 2005)

And the last method of cash management is by using securities that can be quickly and easily converted to cash. Companies often times take excess cash that they have and invest it in these sort of short-term securities. The big issue that management