Overview of Cash Management MBA 503

Cash management involves controlling the cash flow (cash receipts in and cash payments out) of a firm to minimize nonearning cash balances (Block-Hirt, 2004). According to A Handbook of Management Techniques (2008 ) the purpose of managing cash is to ensure that there is enough cash and working capital for fluctuating needs without tying up funds needed elsewhere or relying too heavily on short-term financing.

Cash management requires continuous monitoring and must involve immediate and responsive decision making by managers. Managers must also know when to supplement cash flow through short-term financing. In order manage the cash, managers must know the various techniques of cash flow, and managers should also know the various methods of short-term financing available. This paper will present an overview, through a comparison contrast format of these management tools to allow the financial manager to be well-versed in the most effective ways to manage the cash of a firm and to determine the most efficient ways to obtain additional cash as needed.

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Cash Management Techniques:Financial managers are expected to maximize profit for a firm through effective cash management strategies which will ensure that a firm is able to continue its day to day operations to satisfy both short-term debt and upcoming operational expenses. Some of the cash management techniques available to managers are: float, improving collections, extending disbursements, conducting a cost-benefit analysis, using electronic funds transfer, international cash management, marketable securities, management of accounts receivable, and inventory management. Each of these techniques will be briefly described in this overview.

Float occurs when there are delays in mailing, processing and clearing checks in the banking system which cause a difference in what is shown on the books in comparison to the true bank balance. Float was a strategy used more in the past, before the...