Cash Management Techniques And Methods Of Short-Term Financing


Proper cash management and efficient short-term financing are both important and beneficial to a company in order to maintain a competitive market share, which will increase profit potential and shareholder value through rising stock. Cash management can be used to lower or eliminate idle cash balances that do not earn revenue, using the freed up cash as sources for short-term financing through interest building securities. Short-term financing allows a company to secure needed funds in order to meet production needs and gain maximum profitability.

The first part of this paper will compare and contrast the techniques of cash management that are available to a financial manager and his/her company. Cash management techniques include collection/disbursement float, Electronic Funds Transfer, international cash management, and marketable securities. The second part of this paper will compare and contrast the methods of short-term financing that are available to a financial manager and his or her company. Methods of short-term financing include trade credit, bank loans, commercial paper, foreign borrowing, receivables financing, and inventory financing.

Description of Cash Management Techniques

Float is the difference between a company’s recorded amount of available cash and the amount that has been credited to the company by the bank that results from time delays in certain processes within the banking system, such as mailing and clearing checks. Companies “play the float” in order to decrease collection times or extend disbursement dates, allowing them to have more cash on hand to use for interest building securities. Electronic Funds Transfer is a system that allows funds to be transmitted and credited electronically without the presence of a paper check. Electronic Funds Transfer increases the efficiency of the banking system and decreases collection float time. International cash management is a technique that allows a company to deposit money in countries with high interest returns. International cash management provides opportunities for a company to invest in high return loans that maximize profitability. Marketable securities is a technique that turns non-generating cash into interest generating revenue through treasury bills, treasury notes, CD’s, commercial paper, Eurodollar deposits, and savings accounts.

Compare and Contrast Cash Management Techniques

As stated in the intro, all of the cash management techniques are used to eliminate unwanted cash balances that do not generate revenue, turning them into interest earning securities. This elimination of cash balances is done through the control of collections, or cash inflow, and disbursements, or cash outflow.

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