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Cash Management Techniques and Short-term Financing Methods
Cash management is an integral part of a successful organization, if money is mismanagement as the nation has witnessed in past years with large organizations like Enron it is devastating and everyone in the organization can suffer. When an organization’s cash and assets are management successfully the company is able to pay bills on time, receive funds from customers in a timely matter and reinvest excess cash. In this paper I will compare and contract different cash management techniques and short-term financing methods companies may use to grow their businesses.
Cash Management Techniques
There are many cash management techniques that help businesses organizing income and expenses. Corporations want to reinvest excess cash coming in as soon as possible to maximize profits, at the same time it is necessary to also keep spending money on hand for planned transactions such as payroll and paying for supplies. Effective business cash management means being able to reinvest as mush cash as possible and plan for upcoming expenses.
The ability to manage assets effectivley will dictate the success of the company. “The key to current asset planning is the ability of management to forecast sales accurately and then to match the production schedules with the sales forecast. (Block, 2005, p. 85) ” This can be a difficult task, when the forecast sales and actual sales figures do not match this can drastically effect cash flow.
The level production method attempts to match production levels to the amount of product being sold. In this form of cash management, current assets increase as products are sold and decrease when there is too much being produced and not enough being sold. This method may be difficult to for seasonal businesses such as publishing and retail companies. Companies are aware the products offered may be in demand but it is difficult to accurately forecast...