Managing the financial health of a business, depending on its size and the number of currencies it deals with, can be a complex task. It often involves handling multiple bank accounts, receiving and sending out various currencies, or sometimes managing the same currency across different accounts. In the context of a finance director’s role or within a treasury department, cash management is a primary aspect of the day-to-day operations of a business.
In this article, we will expand on the specifics of what cash management is and explore its importance and the key practices that contribute to effective financial oversight.
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What is Cash Management?
Cash management refers to the process of collecting, managing, and optimising cash flows to ensure that a business has sufficient liquidity to meet its obligations and operate efficiently. It involves a range of activities, including:
- Cash flow forecasting
- Maintaining adequate cash reserves
- Managing bank accounts
- Handling currency risks
- Moving funds to the right accounts at the right times
Effective cash management helps organisations minimise costs, maximise returns on excess cash, and ensure financial stability.
An essential part of cash management is knowing where cash is within the organisation. This involves keeping track of all the different accounts and sub-accounts that a company holds and looking for the best ways to structure the use of cash. This is done by using a TMS for large companies and enterprises or can be done by setting up multi-currency accounts with companies like Rutland FX for small to medium sized businesses.
By efficiently managing these accounts, businesses can ensure that funds are available when needed and used from the appropriate accounts to optimise cash flow and minimise costs.
Managing Currency Balances and Timing Expenditures
A key part of cash management is timing large purchases and aligning them, if necessary, with large receivables while ensuring there are sufficient funds in the correct places to pay the expenses that need to be paid. Additionally, it involves avoiding unnecessary currency conversions where they are not required, in situations where there are sufficient funds to cover the costs.
A company might hold balances in various currencies to avoid conversion costs where they have expenditure in the same currency. However, on some occasions, such as when large expenditures are planned like expanding a sales team or acquiring new office space, effective cash management ensures that sufficient funds are available in the required currency. This might involve converting currencies at optimal times to take advantage of favourable exchange rates and deciding between which currencies are in surplus and can be used to fund the expansion.
By aligning cash inflows with outflows, businesses can maintain a healthier cash flow and reduce the risk of liquidity issues.
Enhancing Cash Management with Rutland FX
For small to medium-sized businesses, especially those without their own treasury department or management system, Rutland FX offers a cost-effective suite of services to simplify and enhance cash management. Our multi-currency accounts enable businesses to receive funds, hold balances, and move funds between accounts effortlessly.
Funds are automatically debited and credited to the relevant currency accounts when a conversion is booked, reducing the administrative burden. The platform provides comprehensive visibility of all accounts and balances, allowing you to see all your finances in one place and easily manage transfers between multi-currency accounts. Additionally, you can pay your suppliers directly from the multi-currency account.
Rutland FX also allows you to book forward contracts to secure favourable exchange rates directly on the platform, manage all your payees, and ensure more predictable and stable financial planning.
Conclusion
In summary, cash management is about strategically overseeing cash inflows and outflows, ensuring liquidity, and making informed decisions to support the financial health and operational efficiency of the business. This includes not only managing current cash but also planning for future cash needs and timing expenditures effectively to optimise financial performance.
Still not sure?
If you are still unsure or have any further questions, please call us on 0203 026 0112 or request a callback to discuss your requirements.