You’ve heard the saying:
Cash is king.
But that doesn’t just apply in the retail world. In business, cash flow is everything, and strong cash management is critical to maintaining liquidity and ensuring current liabilities can be serviced.
In this article, we’ll explain what cash management is, the key activities involved, and strategies you can implement right now to improve cash management.
What is cash management?
Cash management refers to how a business tracks, plans, and controls the movement of cash to ensure it always has enough on hand to operate smoothly.
It includes overseeing receivables, payables, and short-term cash positions so the company can stay liquid, meet obligations on time, reduce the risk of cash shortfalls, and avoid leaving excess funds sitting idle.
Key activities in cash management
Strong cash management relies on a set of core activities that improve visibility, strengthen liquidity, and support smarter financial decisions.
Cash flow monitoring
Tracking daily inflows and outflows of cash gives teams a more accurate view of the company’s real-time cash position, helping to identify trends early and prevent issues from escalating.
Liquidity management
Liquidity management ensures the business always has enough accessible cash to meet short-term obligations. It focuses on balancing available funds and surplus cash to avoid shortages, reduce reliance on borrowing, and stay agile during unexpected disruptions.
Receivables and payables management
Effective management of both accounts receivable and accounts payable helps to stabilize working capital.
Strategies here include:
- Prompt invoicing
- Clear payment terms
- Structured collections processes
- Strategic scheduling of outgoing payments
Short-term investing
Short-term investing puts surplus cash to work without compromising liquidity. Low-risk, short-duration investments help avoid idle balances while still allowing quick access to funds when needed.
Bank account management
Solid management of business bank accounts keeps financial operations accurate and secure.
Finance teams should conduct regular reconciliations, work to manage efficient banking relationships, and optimize account structures to improve transparency, reduce fees, and avoid errors and fraud risks.
Risk management
Cash-related risks such as customer defaults, cash flow gaps, or unexpected expenses can impact stability. Identifying these risks early and maintaining safeguards like reserves or diversified revenue streams helps protect the business over time.
Importance of cash management
Effective cash management strengthens a business’s financial foundation and allows leaders to operate with confidence. It also supports:
- Financial stability, by maintaining sufficient liquidity to cover expenses and navigate unexpected disruptions
- Stronger profitability, by reducing unnecessary borrowing and late fees
- Operational efficiency, by streamlining payment cycles and avoiding late payments to vendors and employees
- Strategic decision making, by providing accurate, real-time visibility into cash position
Benefits of effective cash management
When businesses manage cash proactively, they benefit from:
- Improved cash flow visibility: Real-time insight into inflows, outflows, and balances helps leaders understand the company’s financial position at any moment.
- Enhanced financial forecasting and budgeting: Accurate, up-to-date cash data supports more reliable forecasts, better budgeting decisions, and proactive planning.
- Stronger liquidity: Businesses with strong cash management are able to meet obligations, cover unexpected costs, and operate effectively without relying on costly short-term borrowing strategies.
- Reduced financial risk: Minimizes the chance of cash shortages, prevents missed payments, and protects the business from volatility in revenue or expenses.
- More predictable operations: Stable cash flow creates smoother vendor relationships, consistent payroll cycles, and fewer day-to-day disruptions.
- Better use of surplus cash: Companies can direct excess funds into productive uses, maintaining an optimal balance of short-term and long-term investment strategies.
- Greater confidence in long-term planning: Reliable cash insights help leaders evaluate opportunities, allocate resources, and make informed strategic decisions.
Strategies for implementing cash management
Looking to improve how your organization manages cash? Here are six strategies to consider implementing.
1. Conduct regular cash flow analysis and reporting
Consistent cash reviews will give you real-time visibility into your company’s financial position.
Consider implementing daily or weekly analyses to help identify emerging shortfalls, track trends, and improve planning.
Use simple reports that summarize balances, upcoming obligations, and variances to ensure decisions are made with current information, not assumptions.
2. Build accurate forecasts with clear policies and procedures
Strong forecasting depends on consistent processes. Establish standard policies for invoicing, collections, payables scheduling, and how cash projections are created.
Use historical data and expected inflows and outflows to develop rolling forecasts that help the business anticipate needs, allocate resources, and avoid surprises.
3. Strengthen receivables and payables discipline
Start with accounts receivable, creating more predictable cash inflows by:
- Sending invoices promptly
- Setting clear payment terms
- Following a structured collection process
On the AP side, schedule payments strategically (around client payment dates), look to take advantage of more favorable payment terms, and avoid paying too early when it strains liquidity but doesn’t provide any kind of discount.
4. Maintain appropriate reserves for stability
A dedicated cash reserve gives businesses the flexibility to handle unexpected expenses, seasonal fluctuations, or short-term revenue dips. Define a target reserve amount based on operating needs and ensure the buffer is protected and replenished as the business grows.
5. Utilize technology to automate and centralize cash tracking
Modern digital financial management tools can simplify cash management by providing automated reconciliation, real-time spend visibility, and streamlined AP and AR processes.
Centralizing cash data reduces manual effort, improves accuracy, and helps teams respond quickly when conditions change.
6. Monitor key performance indicators and adjust as needed
Track metrics such as days sales outstanding, days payables outstanding, and the cash conversion cycle to assess how well cash is moving through the business.
From there, use regular KPI reviews to identify process bottlenecks, inform process improvements, and ensure that your cash management strategies evolve as your business does.
Common challenges in cash management
Businesses often face obstacles that make it difficult to maintain steady cash flow, stay liquid, and plan ahead with confidence. These challenges can disrupt operations and limit growth if they aren’t managed proactively.
- Inaccurate cash flow forecasting: If forecasts are based on outdated information, inconsistent processes, and assumptions, they become unreliable. This leads to missed opportunities and cash shortfalls.
- Unexpected expenses and their impact: Emergency repairs, equipment failures, and unplanned costs can strain liquidity quickly, especially without a sufficient reserve to absorb short-term shocks.
- Balancing cash reserves and investment: Businesses that hold too much cash miss out on potential returns. On the other hand, investing too aggressively can leave the company exposed during cash crunches.
- Timing gaps between payables and receivables: Delayed customer payments combined with fixed outgoing obligations create short-term pressure, making it harder to keep cash flow steady.
- Overreliance on manual processes: Manual tracking and spreadsheets increase the risk of errors, slow down reporting, and reduce the accuracy of forecasts and cash visibility.
Improve cash management with BILL
Effective cash management comes down to maintaining predictable cash flow, strong liquidity, and disciplined AR and AP processes that give leaders the visibility and control needed to run the business with confidence.
BILL’s integrated financial operations platform helps finance teams strengthen and streamline these activities through:
- Automated invoicing and collections that accelerate incoming cash
- Centralized AP workflows with real-time spend visibility
- Automatic bank reconciliation and up-to-date cash balances
- Custom approval workflows to reduce errors and tighten controls
- Dashboards and reporting that support accurate forecasting and planning
Frequently asked questions
What are the three activities under cash management?
The three big activities that sit under cash management are:
- Monitoring cash flow
- Managing liquidity
- Overseeing receivables and payables
What is good cash management?
Good cash management involves:
- Keeping cash flowing predictably
- Maintaining enough liquidity to meet current expenses
- Using surplus funds efficiently to maximize growth
Is cash management safe?
Yes. In fact, when done properly, solid cash management reduces financial risk through improved visibility, stability, and control over cash on hand.
