Cash Management and Short-Term Financing

Introduction

It is important for companies to manage their cash because holding a lot of cash is not necessarily a good thing. In fact many companies will not hold onto excess cash and will in fact invest it into short term investments. Choosing how to manage cash and how to invest the excess is a decision that is up to the company, and is not necessarily an easy one. If a company does not have any, or not enough, excess cash they may need to consider short-term financing to augment their supply. How they choose which financing to use is often more complicated then deciding whether or not they need it.

Managing Cash

Cash management in handled though the cash-flow cycle. This cycle relies on when and how funds are collected as well as paid out and how fast the banking system is (Block and Hirt, 2004). For instance if a supplier cashes a check too soon, and the bank is slow to process checks from customers, there may be a negative balance of cash in the company's account.

Cash flow has become a complicated issue for companies in this technological age we live in. With the advent of online shopping companies are speeding up the collection process by use of credit card. When buying online customers