How to Improve Cash Management?
There are many ways through which we can improve cash management. Some of them are discussed below:
1. Accurate Cash Flow Forecasting: Making accurate cash flow forecasts by regularly updating financial models and by using market trends, business intelligence, and forecasting tools or software.
2. Explore Short-Term Investments: Businesses should identify suitable short-term investment opportunities for engaging surplus cash. Firms can also use money market instruments, certificates of deposit, or other low-risk investments to earn additional returns.
3. Effective Communication with Stakeholders: Maintaining open communication with customers, suppliers, and financial institutions helps negotiate payment terms and conditions when necessary.
4. Working Capital Optimization: Evaluation and optimization of working capital by balancing current assets and liabilities can help in improving cash management. It will minimize the time between paying for inventory and receiving cash from sales.
Creating Cash Reserve: Cash reserve ensures liquidity in the business and acts as a lifesaver in case of unforeseen circumstances.