Cash Management

Managing cash is an integral part of a company's overall operations. Cash is required to sustain the operating cycle, and cash managers ensure that a company's operating cycle is adequately financed. Therefore, the objectives of cash management are closely related to the management of the operating cycle.

Objectives

The primary objective of cash management is to utilize cash as efficiently as possible in a manner consistent with a company's overall strategic objectives. Major objectives of cash management include:

1. Maintaining Liquidity - Liquidity refers to a company's ability to meet upcoming obligations in a timely and cost effective manner.

2. Optimizing Cash Resources - Cash managers establish systems that reduce holdings of non-earning cash balances to minimum levels while still providing adequate liquidity. Any excess cash balances are either invested to generate additional income or used to reduce interest expense through the repayment of debt. 

3. Financing - Cash managers assist in obtaining both short- and long-term borrowed funds in a timely manner and at an acceptable cost. These credit facilities are used to fund a company's cash shortages.

4. Managing Risk - Cash managers help in the monitoring and controlling of a company's exposure to interest rate, foreign exchange, and other risks. 

5. Coordinating Financial Functions - Cash managers help ensure that managers in other areas of the company understand and implement policies that are consistent with cash management objectives.

Roles of Cash Managers:

Funds Management

• Monitoring the daily cash position
• Controlling cash balances on deposit at financial institutions 
• Moving funds from concentration accounts or other accounts to where they are needed 

Banking System Administration

• Managing bank relationships, including compensation for banking services
• Conducting analytical reviews and feasibility studies of banking services 

Liquidity Management

• Short-term borrowing 
• Short-term investing 

Forecasting

• Projecting future cash shortages and surpluses 
• Monitoring the accuracy of prior projections 

Systems Design, Implementation, and Evaluation

• Analysis, design, and implementation of cash management systems 
• Ongoing evaluation of cash management systems 

Reporting Relationships

In most companies, the cash manager reports directly or indirectly to the treasurer who, in turn, reports to the CFO. In a small company, the cash manager's job may be a responsibility of the treasurer or assistant treasurer, but in a large company a staff of several people may be devoted to cash management activities.

Coordination with Other Internal Functions

Cash management requires teamwork and cooperation with other internal departments of a company. The activities of other departments, such as credit management and accounts payable, have a direct impact on the cash management function. Often these departments report to managers outside the treasury area, such as the controller. Therefore, the cash manager must often interact with these departments and assert informal influence to ensure that overall cash management objectives are met.

Source: Essentials of Cash Management, Sixth Edition, a publication of the Treasury Management Association