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Introduction
“Managing cash is becoming ever more sophisticated in the global and electronic age of the new century as financial managers try to squeeze the last dollar of profit out of their cash management strategies,” (Block & Hirt, p. 175). Companies are continually looking for ways to free up cash in case of emergencies and using a variety of methods to maximize the value of the cash on hand. Following is a comparison of various types of cash management and the benefits or drawbacks of each cash management method. In addition, the reader will find a comparison of short-term financing available to companies today. “Approximately 40 percent of short-term financing is in the form of accounts payable or trade credit,” (Block & Hirt, p. 211).
Organizations rely on cash flow charts to track incoming and outgoing cash on a daily, weekly and monthly basis. The charts are designed to provide the firm with the information needed to conduct day to day business based on how the firm operates. Based on the standard cash flow chart, customers provide sales that are made with cash or credit. Credit sales become account receivables that will eventually be collected and turned into cash, which is then used to create inventory to be sold, beginning the cycle again. However, business is not that simple and is not strictly a matter of producing a good and selling it. Other factors must be figured into the equation such as wages, administrative fees, and dividends for stockholders, taxes, and a number of other costs related to business. The aforementioned factors must also be figured into the cash flow chart.
Among the various methods of cash management is collections and disbursements. A common method used in business is the “float” method of bookkeeping. “There are two cash balances of importance: the corporation’s recorded amount and the amount credited to the corporation by the bank. The difference between the two is called float, and it...