Cash management helps businesses guarantee that their cash flow can cover their financial obligations.  Cash flow refers to the money that goes in and out of business and the movement of money through bank accounts.  Cash flow relies on clients paying for services or products, when possible within 30 days, to ensure the payment terms align with expenses incurred to keep a business running. 

In the context of businesses, cash management, or treasury management, refers to managing operations, financial investments, financing activities, and mitigating associated risks.  Effective cash management strategies are essential for predicting the availability of funds to cover expenses. 

Cash management is vital in ensuring a business's solvency, even during slow periods. It allows companies to meet their everyday needs, invest in growth opportunities, and maintain good credit for future financing requirements. 

Efficient cash management also involves optimizing invoicing processes to prevent tying up too much cash in low-yield accounts.  Instead, a well-managed cash flow enables timely investments that help a business thrive or simply stay afloat during economic downturns.  

Minor adjustments to cash management processes can significantly impact a business's financial health.  For instance, a company might prefer to pay bills as soon as they come in; however, this can lead to cash flow issues if a bill is paid too early, leaving insufficient funds for other more urgent payments.   

By scheduling payments closer to their due dates, cash management ensures businesses can allocate funds to other uses, such as accruing interest income or purchasing new equipment.  Additionally, monitoring metrics such as "days to collect" can provide insights into the effectiveness of cash management strategies and inform necessary adjustments.

Cash management can be a complex and challenging task for businesses, mainly when dealing with high volumes and scales of monetary transactions.  Tracking numerous payments with varying timelines and payment types that settle at different speeds can be daunting, leaving ample room for errors. Furthermore, calculating key financial metrics such as average accounts receivable and total credit sales can only be made possible with a comprehensive and efficient system. 

A significant portion of senior finance decision-makers, nearly 58%, admit that it is challenging to obtain a complete financial view of their company using their current payment operations system.  This highlights the need for improved tools and strategies to effectively manage cash flow and make informed decisions based on accurate financial data. 

To address these challenges, businesses require real-time visibility of their financial transactions, ensuring that they have access to the most current information on cash movement and transaction details.  Implementing established tools can help businesses automatically match and reconcile bank statements with customer payments, simplifying money management and making cash management more efficient.  This real-time visibility and accurate financial metrics can significantly improve a company's ability to manage cash effectively and confidently. 

Various strategies can strengthen a company's cash management efficiency.  These best practices include centralizing accounts receivable and accounts payable processing through a center of excellence to enforce common standards, automating cash management processes to reduce errors and save time, and adopting key performance indicators (KPIs) to measure and monitor financial performance.  By implementing these best practices, businesses can optimize their cash management operations and ensure financial stability: 

1. Leveraging technology to enhance the collection process: Streamline your cash conversion cycle by delivering invoices electronically and implementing a vendor portal.  These solutions speed up billing and collections, enable electronic payments, reduce dispute resolution time, and provide timely reporting to help you proactively address delinquent accounts, collect payments more efficiency and take advantage of supplier discounts. 
2. Optimizing financial functions for improved cash management: Adopt effective accounts receivable practices, such as reducing invoice error rates and regularly following up on collections.  Some organizations may choose to offer incentives to customers who expedite payments.  These practices ensure that customers pay their invoices efficiently, reducing the average number of days required to receive payment.  For accounts payable, negotiate favourable terms with suppliers, issue purchase orders, and periodically benchmark vendor contracts against industry standards.  Analyze account and SKU profitability to reduce inventory levels and consider the cash flow implications of different supply chain strategies. 
3. Enhancing visibility with cash flow reporting: Track your cash flows by forecasting income and cash flow statements, linking them to key working capital metrics from the balance sheet.  Automate this process to increase accuracy and review variances to refine your forecast assumptions.  Integrate cash flow forecasting with your P&L statement and balance sheet to track performance against various indicators. Consider weekly cash flow reporting in tight financial times and establish a cash committee to oversee the process and drive change. 
4. Matching funding to cash flow obligations for better cash management: Ensure that your business has access to the cash it needs to meet both short-term and long-term obligations by matching various funding sources to capital flows.  This practice can help you manage your cash flow effectively, enabling your business to meet its ongoing operational expenses, capital project investments, and term debt maturities. 

Over the past three years, businesses have experienced significant shifts, adaptations, growth, and closures due to unpredictable market conditions.  These changes have impacted all aspects of business, particularly accounts receivable (AR) teams that rely on consistent processes and payments to sustain their organizations.   

Previously, only the largest and most innovative companies pursued digital processes and flexible online payments.  Today, companies of all sizes and are pursuing digital solutions to meet their objectives and support their clientele. 

A staggering 93% of US firms with at least $25 million in revenue are digitizing their AR operations.  As we enter another year of volatility and uncertainty, businesses must continue navigating AR processes' complexities. By focusing on a few key areas, companies can substantially improve their efficiency and effectiveness, and optimize their days sales outstanding. 

Efficient cash management ensures financial stability and growth in an ever-changing business landscape.  By focusing on optimizing liquid assets and minimizing operational costs, companies can maintain solvency even during challenging times.  Cash management involves monitoring and maintaining cash flow, adopting best practices, and utilizing tools that provide real-time visibility into financial transactions.  

By automating processes, centralizing accounts processing, and implementing key performance indicators, businesses can streamline their cash management operations and make informed decisions based on accurate financial data.  Furthermore, companies must prioritize reducing Days Sales Outstanding and optimizing Days Sales in Cash to maintain a healthy cash flow that supports daily operations, growth, and expansion.  By adopting these strategies, businesses can effectively navigate the complexities of cash management and ensure long-term success.