Evaluation of Cash Management Techniques

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Cash management techniques are financial strategies used by many organizations in order to keep track of the money involved in their businesses, which can include profits, expenditures and debt. These techniques also involve an understanding of how to record and handle a company's finances to ensure it is generating profits and is essential to the health of the company. It is essential for companies to have a cash management system because it involves the collection, concentration and disbursement of cash, which in turn, helps prevent bankruptcy due to insolvency, improve profitability and reduce risk exposure. Being able to manage working capital may be one of the most difficult things a company needs to do in order to survive due to the fact that cash flow is directly correlated to working capital (Cloutier, 2009). It is important for a company to have enough working capital to be able to purchase inventory and pay other operating costs. Companies must also be able to properly manage their business risks, such as large orders not being delivered on time and client defaults on payments. In order to avoid these risks, it is a good idea for a company to diversify their clientele because having multiple sources of cash is better than having to depend on the financial health of others. The best way for a company to manage their cash inflow is to collect payments from clients as quickly as possible by making sure that all payments are processed in a timely manner and that customers with credit receive their invoices well ahead of the due date. Doing this will help maintain their working capital by ensuring that cash flow is steady and ...