Cash management - Financial definition
Concise definition of the term cash management
Cash management in finance refers to the process of collecting, managing, and optimizing cash flows within an organization to ensure adequate liquidity, minimize costs, and maximize returns on idle cash.
Comprehensive definition of the term cash management
In a broader context, cash management encompasses a range of activities and strategies designed to handle a company’s short-term assets and liabilities efficiently. This includes forecasting cash needs, managing receivables and payables, investing surplus cash in short-term instruments, and leveraging various financial tools to ensure smooth operations.
Practical examples include using lockbox services for faster collection of receivables, setting up automated payments to manage outflows, and employing treasury management systems to monitor and optimize cash positions. Market practices also involve negotiating favorable terms with banks for lines of credit and optimizing the float to improve cash availability. Effective cash management is critical for maintaining solvency, supporting day-to-day operations, and enabling strategic investments.