Cash Flow Management

by Alaina Roussel

What is Cash Flow Management?

The Cash Flow management includes all the strategies put in place to analyze and operate the currency flows of a company.

The assessment of the amount of incoming and outgoing cash is decisive for the proper management of a company.
Cash flow management defines precisely how large are the funds available at any moment in the evolution of a corporation to estimate the potential losses that could arise.
These flow changes are the daily life of every business, and cash flow management ensures the financial security of a company.

Cash flow varies depending on the activity of the company, and can be negative or positive.
A negative cash flow means that the final balance is inferior to the initial balance, which can be caused by paying wages, purchasing goods, investing…
A positive cash flow means that the final balance is superior to the initial balance, which is mainly due to a return on investment, the sale of products or services, the sale of inventory, a cost reduction, better interests…

Positive Cash Flow

Having a positive cash flow represents for a treasury a usual situation. It is due to the cash inflows being higher during a given period than the cash outflows on the same period.
Positive cash flow is not always equal to profit, and is usually due to a good management of both expenditure and cash inflows.

When cash flows remain large and persistent, it may indicate an issue in stock management, the firm not keeping enough stocks of finished products or raw materials.
The consequence can therefore be the loss in sales due to shortages.

Negative Cash Flow

In this case, the cash outflows are higher than the cash inflows during a given period.

Negative cash flow does not always leads to loss. It also may be due only to a mismatch of income and expenditure. However, when the mismatch is chronic, it may point out an issue in credit management, leakage of funds through fraud, or even actual loss.
An overdraft facility is often used to temporarily cover the mismatch.

A Subdivision of Cash Management

Cash management is on an upper level, and  has therefore to represent past expenditures and cash flows, but also to forecast the future cash flows in order to adapt the strategy of a business and determite if funds are available for investment.

How to Improve Cash Flow Management?

Cash flow can be improved through several steps:

  • Sale increase
  • Loans more secure
  • Discounts
  • Collecting receivables
  • Tightening credit requirements

For a better cash flow management in large groups, and even in smaller companies, simple solutions like spreadsheets can’t be enough, and professional cash pooling and Cash Management software (CashValue) have to be used for a total visibility and control of current cash flows and forecast.


Glossary