The Impact of Cash Management on the Performance of an Organization
Effective working cash management can affect significantly on the performance of the entire organization. The companies that have effective cash flow management practices enable to generate income and have more opportunities in the business, since they are less dependent on financing assistance. However, doing this practice is not easy; it needs a lot of efforts and continuous process improvement strategies and techniques. Additionally, to become successful with the cash management practices, an organization must need a cross-functional alignment of many key employees in the firm. These individuals are in charge of overseeing the cash flow management situation as well as the objectives of the program; whether the goals are met or not. This approach requires a holistic approach in every areas of the company; and the customers as well as the suppliers must be taken into major consideration. Additionally, through effective cash flow management, top performing companies are being able to save up to $ 2.9 billion that can add to their working capital compare to other typical 1000 organizations.
(http://www.thehackettgroup.com/expertise/working-capital-management.jsp)
For many businesses, cash flow management is the process of monitoring, analyzing and adjusting the working capital of the business. And, the most important part of cash flow management is to eliminate various cash shortages in the business. Many companies do not stay long in the business because they can no longer pay their bills and other monthly expenditures anymore. Hence, in order to minimize these problems in the business, a cash flow analysis is required to be done on a regular basis. This is actually a procedure wherein forecasting of the cash flow is made , so that the management has the time to take extra ordinary measures to head off whatever cash flow problems there will be in the business. This is also the major reasons that many companies have been hiring accountants for them to make a financial report of the status of the company as well as to analyze what the direction of the company heads is on to. Another step of cash flow management is for the firm to develop, so as to use effective strategies in order to maintain an efficient cash flow for the business. And, one of the most useful and effective strategies is to shorten the cash flow conversion period of the business so that the return of investment will happen quickly. In this connection, cash flow is the in and out movement of money of the business. It is the cycle of cash liquidity of the business. By having a good cash flow management, it has a tremendous impact to the performance of the entire areas of the company such as it affects the accounts receivable, inventory process, accounts payable and credit terms and status of the company and foremost on the company’s revenue.
(http://sbinfocanada.about.com/cs/management/g/cashflowanal.htm)
Correspondingly, cash flow management is the lifeblood of any organization. If a firm does not have enough cash on hand, it cannot pay the suppliers, employees and the stakeholder. If this situation remains in the business for a long time, the company will be subjected for a closure. Another thing, without enough cash flow, even a company has tons of goods and ample of collectible invoices, it still cannot do the paying task to the employees, suppliers and other expenses. Thus cash is very crucial to make the business going with its regular operation. More than that, cash flow is hard to predict than profit and loss. For small time business, it can be able to estimate when it closes a business deal and earn a profit from it. Though, the businessman has already little control over the money which is already paid by the customer, it may go to various payables or may pay to various monthly bills in the office. In view thereof, in order to improve the cash flow of the business there must be cash flow forecasting process has to be made in order to know the impact of unforeseen events, market cycles, loss of major customers and actions to be taken with the competitors. In addressing the issue of cash flow management, there must be information access, efficient banking channels as well as linkages between production and billing department. In the same way, there should be internal systems and good treasury practices within the organization. Likewise, there must be combining operational and financial effort and skills that will certainly determine and compliment with the implemented strategies that provide short-term revenues for the business. At the same time, proper collaboration with the clients will provide favorable results to the entire organization as well as to the whole workforce. Meaning, if the business has an excellent customer relationship with their clients, it may only shows that increase of sales will take place sooner, and it will help the business to align better its cash flow with the help of management practices and policies.
(http://smallbusiness.dnb.com/company-activities-management/financial-performance/7310935-1.html)
References:
(http://www.thehackettgroup.com/expertise/working-capital-management.jsp)
(http://sbinfocanada.about.com/cs/management/g/cashflowanal.htm)
(http://smallbusiness.dnb.com/company-activities-management/financial-performance/7310935-1.html)
Credit:ivythesis.typepad.com
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