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Mba 503 Cash Management

Running head: Cash Management

Cash Management
University of Phoenix
Corrine Hasbany
MBA 503
December 23rd, 2007

Cash management is an essential technique for any retail business to keep track of all of their finances and how they are working for them. This paper will compare and contrast different cash management techniques and different methods of short-term financing. I will compare different techniques as well as giving some examples to better describe them.
Understanding good cash management is very important to a business. Good techniques can help a company maximize profits and cut down on costs. According to the text, “Cash management involves control over the receipt and payment of cash so as to minimize non-earning cash balances.” (Block, Hirt 2005) In the business world, it’s actually beneficial to minimize the amount of cash kept on-hand. With that being said, however, there are still a number of reasons to keep cash on hand, including transactions, compensating balances for banks, and in case of emergency needs. One technique used for cash management is improving collections. When payments are made to a business, the business wants to get a hold of the cash as soon as possible. One method companies use to improve collections is to set up a number of collection centers spread out amongst their service areas. This allows customers to make payments locally, and each collection center can clear checks at local banks to make funds available sooner. A real world example of this can be a credit card company such as Citibank. While their main company is located in one place, they have smaller collection centers all over the country, so that someone living thousands of miles away can drive ten minutes to make a payment, and the company gets the cash much quicker. Another method is the lockbox system. This works in the same way, but costs less to a company since they don’t have to actually run a collection center. Customers send their...