Cash Management and Treasury Management products and services are frequently confused. They are regarded as “simply another commodity” provided by banks. Wire transfers, sweep accounts, and merchant services, on the other hand, are all cash management products that provide business owners various options to generate profit, and they are not the same.
If you’re a business owner looking for ways to solve liquidity issues, here’s what you need to know about cash management and how it can help you re-ignite your cash flow. We are also going to see the top 10 cash management software for your small business.
What is Cash Management?
Cash management, often known as treasury management, is the process of collecting and managing cash flows a company’s operating, investing, and financing activities generate. It is an important part of a company’s financial stability in business.
Cash management is critical for both businesses and individuals since it is a component of financial stability.
Money market funds, Treasury notes, and certificates of deposit are examples of financial instruments of cash management.
Companies and individuals in the financial marketplace provide a wide range of services to assist with all forms of cash management. Banks are often the principal provider of financial services. There are also numerous cash management solutions available for both businesses and individuals seeking the best return on cash assets or the most efficient use of cash.
The Value of cash
Cash is the primary asset that individuals and businesses use on a regular basis to settle debt obligations and operating expenses, such as taxes, employee salaries, inventory purchases, advertising costs, and rents, among other things.
Cash is an investment vehicle for long-term assets such as property, plant, and equipment (PP&E), and other non-current assets. Excess cash after expenses is frequently used for dividend payouts.
Companies with a large number of cash inflows and outflows must be effectively handled to ensure acceptable business stability. Maintaining cash balances is also a key worry for individuals.
How Cash Management Works
Chief financial officers, business managers, and corporate treasurers are typically the primary individuals in charge of overall cash management plans, stability analysis, and other cash-related activities in an organization. However, many businesses may outsource some or all of their cash management tasks to third-party service providers.
The cash flow statement is the most important part of a company’s cash flow management. The cash flow statement completely covers all cash inflows and outflows for the firm. It consists of cash generated by operating activities, cash paid for investing activities, and cash generated by financing activities. The bottom line of a cash flow statement reveals how much cash a firm has readily available.
The cash flow statement is organized into three sections: investing, financing, and operations. The operating portion of cash operations is primarily reliant on net working capital. This is on the cash flow statement as a company’s current assets minus current liabilities. Businesses try to have their current assets exceed their current liabilities.
The other two parts of the cash flow statement are a little simpler. With cash inflows and outflows associated with investing and financing, such as real estate investments, purchasing new equipment and machinery, and initiating stock repurchases or paying out dividends as part of the financing activities.
There are numerous internal controls in place to manage and optimize business cash flows. The average length of account receivables, write-offs for uncollected receivables, collection processes, rates of return on cash equivalent investments, liquidity, and credit line management are some of the primary cash flow factors for a business.
What Is Involved in Working Capital?
In general, working capital consists of the following:
#1. Short-term assets
- Cash
- Accounts receivables in one year.
- Inventory
#2. Short-term liabilities
- Accounts payable in a year.
- Short-term debt payments that are due within a year
So, organizations typically record the change in working capital from one reporting period to the next in the cash flow statement’s operational section. If an enterprise’s net change in working capital is positive, it has raised the number of current assets available to cover current liabilities.
If an enterprise’s net change in working capital is negative, it has increased its current liabilities, reducing its ability to pay the liabilities efficiently. Also, the negative net change in working capital reduces total cash on the balance sheet.
Causes of Cash Management Issues
Unfortunately, many organizations practice poor cash management, which can be attributed to a variety of factors. Let’s have a look at a few of them:
#1. Insufficient grasp of the cash flow cycle
The timing of cash inflows and outflows from the entity, such as when to pay accounts payable and purchase goods, should be fully understood by business management. During rapid growth, a corporation may run out of cash as a result of over-purchasing merchandise but not getting paid for it.
#2. Inadequate grasp of profit vs. cash
A corporation can make cash on its income statement while losing money on its cash flow statement.
When a corporation generates revenue, it does not always mean that it has received cash payment for that revenue. As a result, a rapidly expanding business that requires a large amount of inventory may generate a lot of revenue yet not generate positive cash flows.
#3. Inadequate cash management abilities
Regardless of their grasp of the aforementioned challenges, managers must acquire the appropriate abilities. The capacity to maximize and manage working capital is one of the talents required. It can include discipline and put in place the necessary frameworks to ensure receivables are collected on time and payables are not paid more quickly than necessary.
#4. Ineffective capital investments
A corporation may invest in projects that may not yield a sufficient return on investment or cash flows to justify the investment. If this is the case, the investments will have a negative impact on the cash flow statement and, subsequently, the company’s cash balance.
Cash Management Software
Treasury reports and dashboards inside cash management software are used by top executives and corporate owners to improve the firm’s financial strategy and also to share financial information with shareholders, members of the board of directors, and business partners.
The complexity and functionality of cash management software might vary. Some software is primarily focused on cash management for small businesses, while others are primarily focused on liquidity management for large corporations. To acquire the financial information needed to manage liquidity, this sort of software must link with accounting software and ERP systems.
Top 10 Cash Management Software Comparison
#1. GTreasury
GTreasury is your treasury world’s as-a-service ecosystem. Our digital treasury management platform provides cloud access to comprehensive treasury management and risk management solutions and services, resulting in a streamlined process. Whatever your current requirements are, or how you scale your operations in the future, your world is at your command. GTreasury is a functionally rich treasury management solution that helps you to manage liquidity risk, market risk, and currency risk.
#2. Kyriba
Kyriba is a cloud-based Proactive Treasury Management solution for CFOs, treasurers, and finance executives that optimizes cash, manages risk, and works capital.
#3. SAP Treasury and Risk Management
Integrated systems for managing cash and liquidity, payments and bank communications, investment and debt, and forecasts can help you optimize all areas of the treasury function. This solution, built on our in-memory SAP S/4HANA Finance software, delivers complete transparency and on-the-fly analysis across all dimensions of financial data.
#4. tm5
Connecting and integrating every member of your business treasury, from the central treasury to subsidiary accounting, including financial data, to provide you with more complete, more accurate information in real-time, making treasury transparent and hazards visible.
#5. DocFinance
DocFinance is a treasury management application that includes Remote Banking Telemaco services.
#6. MX.3
Treasury, risk management, investment management, and collateral management solutions are all integrated within a capital markets platform.
#7. Openlink
On a single, consolidated platform, Openlink gives a consolidated, enterprise-wide view of commodities, treasury, and risk.
#8. Trovata
Trovata is the first solution to automate cash management that is built natively on direct open banking connections. This simplifies onboarding and provides instant benefit through automatic cash reporting and forecasts in minutes of client time. Trovata improves cash visibility, reduces time spent on manual cash reporting and forecasting, and enables smarter cash decision-making.
#9. AccessPay Platform
AccessPay’s Enterprise-to-Bank integration platform helps enterprise finance and treasury teams overcome banking integration difficulties.
AccessPay’s connectivity package boosts operational efficiency and informs informed decisions with automated payments, cash management, and risk management capability, enabling organizations to securely link any back-office system to 11,000+ banks and payment schemes (Swift, SEPA, Bacs).
#10. Agiletics CAMS
Agiletics CAMS (Cash Management Solutions) are modular banking client liquidity and investment management software systems that work in tandem with one another and other basic banking applications.
Cash Management FAQ’s
What are the 5 cash management tools?
Checking accounts, savings accounts, money market deposit accounts, certificates of deposit, and savings bonds are the five types of cash management instruments (or savings tools).
Why is cash flow management important?
A healthy cash flow ensures that the business can pay its employees on time and has funds to invest in the business’s growth and expansion. There are various resources for paying vendor invoices and taxes.
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