Cash management essentially means dealing with an organization's cash so its use provides the most value to the business. This can mean planning to keep the right amount of cash on hand as well as making plans for the cash the company does not need to have available for business operations. Cash managers plan for, protect, and invest cash assets. Basic parts of planning for efficient cash management include knowing how much cash should be on hand, handling cash transactions in an efficient manner, and investing any surplus cash in securities that will grow the value of the company's money.
Managing cash involves managing the liquidity, or cash assets, available to the company. When cash management is performed properly, a company has the money it needs to conduct daily business and account for unexpected expenses while earning investment money from extra cash. Poor cash management can cause a company to fall short of the money it needs to conduct business. It can also place a company at risk for cash losses like theft or embezzlement.
Cash inflow deals with money brought into an organization. This can be at the point of sale at a retail establishment or through an online check-out system that allows the user to pay electronically. Managing the inflow of cash involves tracking how much cash the company expects to receive versus the cash inflow it actually receives and devising systems to prevent losses during the cash inflow process. Losses that happen during cash inflow can include accounting errors, merchandise discounts, or theft.
Managing the outflow of cash means dealing with the cash going out of an organization. This can include paying employees and paying operating costs. These costs also can include maintenance costs, electrical bills, and property purchases. Property that a company might buy includes land, buildings, and equipment needed to conduct business. If cash is not available to pay bills, a company may suffer production interruptions or financial penalties for the late bills.
Cash can be a tool to help an organization succeed, but it does have a cost. Dealing with physical treasury notes as cash requires storage. Managing cash electronically requires computer systems, software, and often banking organizations. Since cash has a maintenance cost, cash management professionals often offset this cost by investing extra cash in securities that will grow the organization's investment. Investments used in cash management can be properties and physical goods, but most often involve common investments like stocks and bonds.