6 best practices every cash manager should follow (2024)

11 September, 2023

10 mins

Cash, often called the king of assets, holds unparalleled importance in maintaining an organization’s financial well-being. Its efficient management can make the difference between survival and success, especially in an ever-evolving business landscape.

At the heart of this critical function are cash managers – financial professionals who bear the responsibility of not just managing money but also making smart choices about money. From ensuring there’s enough liquidity to meet short-term obligations to seizing investment opportunities that drive growth, cash managers play a pivotal part in a business’s financial success.

In this blog, we recommend six cash management best practices. Now, these practices aren’t just random tips – Based on our experience of 800+ finance transformations, we have curated this list with just one goal in mind- To make a cash manager’s job easy!

Let’s look at the six best practices.

Monitor your cash flow closely, making projections frequently and identifying issues early to maintain financial stability.

For cash managers, it’s crucial to keep a close watch on your cash flow. That means tracking all the money coming in and going out regularly. Also, try direct and indirect cash forecasting to predict how much money you’ll have in the future. This helps catch any unusual or unexpected changes early. If you set up alerts for big changes, you can quickly figure out and solve problems before they get serious.

Why does this matter? Well, when you’re on top of your cash flow and make predictions often, you can make smarter choices. You’ll know exactly how healthy your organization’s money situation is, so you can decide where to spend and save. Plus, if you spot any problems ahead of time – like less money coming in – you can take action fast. This stops money shortages or big money worries. Understanding how money moves also lets you keep the right amount of cash ready for anything. So, as a cash manager, paying attention to these things gives you confidence and helps your organization stay strong and grow steadily.

Maintain a balanced approach between keeping enough cash on hand to cover operational needs and investing excess funds wisely to generate returns.

When overseeing finances, remember the key is balance. Keep enough cash for day-to-day needs, like bills and payroll. But don’t let extra funds sit idle – invest smartly. By finding the right mix, you ensure operations run smoothly while also growing your money wisely. This approach protects against shortages and lets you tap into profitable opportunities.

Here’s the upside: When you manage money this way, you get to write the financial story. You’ll optimize how money flows, preventing shortages and keeping the company’s reputation intact. Plus, by investing the surplus, you’re not letting cash just sit there. Instead, it’s working for you, generating returns that can fuel future growth. It’s like making your money do double duty – securing today and building tomorrow. So, as a cash manager, strive for this balance and drive both short-term operational efficiency and long-term financial prosperity.

Have an emergency backup plan in place to navigate unexpected financial challenges and maintain operational continuity.

In times of unexpected money troubles, it’s smart to have a backup plan. This plan acts like a safety net for your business, helping it stay strong even when things go wrong financially. Start by thinking about what could go awry, like sudden economic problems or surprise expenses. Then, make a clear plan for what to do in these situations. You could save up an emergency fund, diversify revenue streams, establish lines of credit, and set up a plan for making quick decisions when things get tough. Keep practicing and updating this plan so it’s always ready to help.

Now, as a cash manager, this plan can make your job easier. With a backup plan, you won’t need to worry as much about the day-to-day money matters. You can keep paying your employees, bills, and other important costs even when things are difficult. Plus, having a plan in place means you’ll know what steps to take when things get stressful. This stops you from making rushed decisions that could hurt your business. So, remember, having a backup plan isn’t just good for the business—it’s a smart move that makes your job smoother too.

Grow carefully, considering financial implications and aligning growth initiatives with available cash resources.

When it comes to growing your company, take it slow and smart. Always think about the money side of things and make sure your expansion plans match up with the cash you have available. This careful approach helps you avoid getting stretched too thin and keeps your cash flow in a good place. This way, you’ll build a solid and lasting success.

Now, as a cash manager, why should this matter to you? Well, it’s like this: when growth plans fit your cash on hand, you’re in control. You can put money where it’s needed for growth while still keeping enough cash ready for daily operations. By doing this, you’re not just protecting your cash, but you’re also making sure you have the right resources at the right time. So, remember, smart growth means smart cash management. Keep that balance, and you’ll set your company up for strong financial health.

Stay updated with relevant financial regulations, maintain accurate records, and communicate transparently with stakeholders.

It’s crucial to keep up with financial rules, maintain accurate records, and be open with stakeholders. To stay in the loop, regularly check for updates on financial regulations and consider taking courses to learn more. Keep detailed records of transactions and compliance efforts – this not only helps audits go smoothly but also guides smart decisions. When it comes to stakeholders, share clear and honest financial information. This builds trust and boosts the company’s reputation.

When you know the rules and follow them, you avoid penalties and problems. Keeping good records lets you track where money goes and spot trends, which makes managing cash flow easier. Being open with everyone you work with, both inside and outside the company, creates a strong team and builds your reputation. All of this helps you do your job well as a cash manager, keeping the finances in order and the company on solid ground.

Use technology wisely and effectively, integrating treasury management systems and automating routine tasks.

Embracing smart technology in your cash management approach can make a big difference. Think about integrating treasury management systems and automating routine tasks. This move can smooth out your daily operations, cut down on mistakes, and give you more time for important strategic decisions.

When you use technology to bring together different financial tools and automate tasks like checking transactions and forecasting cash, you’re not only lowering the chance of errors but also unlocking the power of real-time data. This shift means less time spent on repetitive work and more focus on the smart moves that count. With automated systems at your side, you can make sharper decisions, manage risk better, and keep your organization’s finances in top shape.

Every morning, your task as a cash manager involves downloading bank statements from different accounts and putting them together in one spreadsheet. After making sure the actual account balances match what you expected, you dive into tracking payments and movements to see how they'll affect your cash on hand.

The problem is, if you mostly use spreadsheets, it gets tricky and time-consuming to look back at past transactions from days, weeks, or months ago. This challenge gets bigger as you deal with more banks. There's a need for a simpler and faster way to handle all of this.

Here at HighRadius, we help businesses, and especially cash managers automate this entire process using the latest cloud and AI technologies. Our Autonomous treasury management solution provides a central repository for tracking, managing, and investigating cash transactions, as well as a variety of related administrative capabilities.

Our cash management software manages to automate almost all the manual cash tasks and frees up your and your teams time and energy to focus on what matters the most- analysis, insights, better decisions, and much more.

Check out our Autonomous Treasury software or Talk to our solution experts for free to understand how our Treasury software can help you scale!

What are the 4 elements of effective cash management?

Effective cash management involves forecasting future cash flows, ensuring there’s enough liquidity to cover short-term obligations, optimizing working capital to minimize excess tied-up cash, and managing risks that could impact cash reserves. These elements collectively help businesses maintain financial stability and make informed decisions.

What are examples of cash management?

Cash management examples include monitoring daily transactions, forecasting cash needs, optimizing cash flow, managing accounts payable and receivable, optimizing inventory, building an emergency cash reserve, investing surplus funds, and continuously monitoring and adjusting strategies. All of these are essential to ensure effective liquidity and financial stability.