The process of collecting, investing and managing cash is known as cash management (Investopedia, 2010). Therefore, both corporate treasurers, and the business managers that are responsible for the entire management of cash will always seek for software that manages cash to increase efficiency and security. The efficient management of cash involves avoidance of insolvency, reduction of days in receivable accounts, selection of short-run investments, improvement of the financial performance of the company, and increasing the collection rates. All of these will help in cash managements to suit the management requirements. However, corporates are always facing some challenges regarding cash management as they deal with liquidity spectrum. The solutions provided for cash management are the multi-country and multi-currency tools of cash.
The cash management systems are disbursement of float, Electronic Funds Transfer (EFT), International Cash Management as well as marketable securities. Therefore, this essay will make a contrast and comparison of the methods of cash management that a financial manager may apply in the firm. The second part of the essay will discuss why some accountants are proposing and opposing cash forecasting in the company. The cash systems support the Treasury regarding payables, receivables, and cash flow forecasting (Lohrey, 2016).
Compare and Contrast Cash Management Techniques
As the company may wish to improve on the collection period while decreasing collection float, it can do it through the increase in collection centers. That is the float that is associated with disbursements can assist the corporation to hold on to the interest earning of the cash balance. Nevertheless, as much as float may be important to the control of the company concerning the collection time and disbursements, it is limited by the check clearing. Thereby it increases the popularity of the electronic funds transfer (EFT).
The EFT limits the ability of the organization to apply float since the transaction is good for the extension of disbursements, the Electronic Funds Transfer boosts the speed of collection period. Similarly, the EFT can be as much as twice cheaper than the fees associated with the processing check. Both float and Electronic Funds Transfer are applied to collections to maximize returns.
The international cash management enables companies to shop around but for high interest rates, and this may not apply to some countries such as the United States. Moreover, it is more complex as compared to any other system because cash is needed to be managed across different physical locations and time zones. Additionally, International Cash Management is also subject to the change of interest rates, and the risk of currency fluctuations. This may devalue the first deposited amount.
Lastly, the Marketable securities are considered as the best technique for cash management. However, it runs the risk of the increasing interest rates that will lead to a loss to the firm. The marketable securities are popular because it gives high returns. According to the expectation, International cash management and marketable securities have the highest risk of the cash management systems, but they offer the best possible returns.
Why some accountants do not prefer cash forecasting
The cash forecasting for over thirty years has been a waste of time, energy, and effort. Even though the publicized rolling of cash forecasts are no better, it aims to improve on the prediction of accuracy by diminishing the time horizon. For instance, it should be more reliable to forecast on the future periods. Cash forecasting needs a vast amount of data to gather, process, refresh, and evaluate. Therefore, it will require a lot of time for the corporation to produce the forecast for the next period. Also, the cost of running the forecasts is unbearable. It also requires many people to operate and distracts the operational staff from their focus on clients.
Why some accountants prefer cash forecasting
The cash forecasting can help in understanding the different decisions so that an accountant can select one that fits the business. It can also be conducted at any stage of a business process, and if a CFO has made a commitment to a growth strategy but something changes, the CFO should pursue it continuously and forecast on new options (Coltman, 2016).
One of the best methods for managing cash flows is to have a strong and flexible relations with the suppliers. This is because suppliers are capable of paralyzing the flow of cash of any business operation if they are mismanaged. That is constant cash forecasting will assist the accountants to identify the vendors that are important to company's cash flow. This will provide an opportunity for strengthening the relationship between the supplier and the corporation.
Conclusion
The considered cash management has the aim of ensuring that the sufficient funds for the company are allocated. Therefore, it involves the control over the receipts and payments of money to maximize the cash balances while earning interest in short-run financing with the freed up cash. Equally, the customer relations is an integral part of cash flow and growth. Maintaining the present client relationships and implementation of the culture of service and value addition can limit the turnover of customers, thereby, growing their loyalty.
References
Cash Management Definition | Investopedia. (2010). Investopedia. Retrieved 27 July 2016, from http://www.investopedia.com/terms/c/cash-management.asp
Coltman, E. (2016). How to make a cash flow forecast. FreeAgent. Retrieved 29 July 2016, from http://www.freeagent.com/business-finances/cash-flow-forecast/
Lohrey, J. (2016). Cash Management Techniques | eHow. eHow. Retrieved 29 July 2016, from http://www.ehow.com/list_6463556_list-cash-management-techniques.html
