Cash Management Paper
Marlene Elizabeth Fain
University of Phoenix
Cash Management Techniques
Cash is a component of a business net working capital and its most liquid current asset. To
understand the role of cash in and out of a business, lets look first at the concept of current
assets and current liabilities.
The working capital cash conversion cycle — also often called the cash flow cycle — is the
length of time between the payment of what a business owes — payables — and collection
of what a business is owed — receivables. Businesses use several techniques to minimize
the length of time funds are tied-up in order to reduce the amount of working capital
needed for operations before applying any techniques it is necessary to understand the
components of working capital that includes cash, marketable securities, accounts
receivable, inventories, accounts payable and accrued wages and taxes.
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Working capital policy refers to decisions related to types and amounts of current assets
and the means of financing them. These decisions will necessarily involve the management
of cash, inventories, credit policy and collection of accounts receivables, short-term
borrowing and other financing opportunities such as trade credit, inventory financing, and
long-term business decisions. Working capital management policies, target short-term
concerns such as receivablesfinancing, availability of raw material and inventories,
continuous operation of the production line, granting credit to customers and collecting
past-due accounts and management of cash accounts.
Cash flow forecasts provide important data for estimating cash requirements, or investing
idle funds not needed for day-to-day transactions, increasing the flow of money that a
