What is cash management?

Cash flow management is the management of the flow of money in and out of a business or organization. Cash management includes the planning, analysis and monitoring of cash flows to ensure the liquidity and solvency of the entity. This may include, for example, the management of bank accounts, the management of short-term investments or even loans and credits.

How to ensure effective cash flow management?

Establish a budget

Establishing a monthly or quarterly budget can help track expenses and income to ensure there is enough money available to cover current and unexpected expenses.

Expense tracking

Tracking expenses and revenues can help identify unnecessary spending and prioritize future spending.

Savings

It is necessary to save part of your income to cover unexpected expenses or to achieve long-term financial goals.

Use tracking tools

There are many online tools that can help track expenses and income, such as budget software for example.

Analyze financial statements

It is necessary to analyze the financial statements of the company in order to identify possible problems and make fairer decisions.

Use lines of credit

Using lines of credit impacts cash flow management by allowing unexpected expenses to be financed without having to sell assets or borrow money at higher interest rates.

The advantages of good cash management

Good cash management allows a company to maintain a sufficient level of liquidity to pay its invoices on time, invest in new projects and new opportunities and deal with various unforeseen events. It can also help reduce borrowing costs and improve the company’s financial credibility with banks and investors. Finally, this can make it possible to optimize relationships with different suppliers and customers, by properly managing incoming and outgoing money flows.

Cash management tools

Financial dashboards

Financial dashboards are tools for monitoring the financial performance of a company. Financial dashboards allow you to group together a company’s main financial data and present it in the form of graphs and/or tables that promote understanding.

Financial dashboards can include expenses, revenue, cash flow, financial ratios, performance indicators and risk indicators.

However, financial dashboards can also include non-financial data such as sales, customers, suppliers, etc.

Cash flow forecasts

Cash flow forecasts are estimates of a company’s future cash inflows and outflows. Cash flow forecasts allow businesses to plan their working capital needs and anticipate possible future cash flow problems.

Forecasts are made over a defined period of time (e.g. month, quarter or half-year) and are based on historical sales and spending trends.

Cash flow plans

Cash flow plans are documents that describe the strategies and actions to be implemented in order to correctly manage a company’s cash flow. Cash flow plans ensure maximization of cash inflows and minimization of outflows in order to optimize liquidity.

Credit limits and lines of credit

Credit limits are debt ceilings set by lenders. These limits determine the maximum amount of money the borrower can borrow at any given time.

As for lines of credit, they represent a type of short-term credit that allows a company to borrow money at any time until reaching a certain threshold.

Cash management software

Cash management software is IT tools that help businesses manage cash flow. This software tracks cash flow, issues cash flow forecasts and plans working capital requirements.