WHETHER you are a small business or a large enterprise dealing in multiple markets, managing your cash effectively is critical in ensuring your company remains solvent and financially stable.
More than just avoiding insolvency, successful cash management entails increasing collection rates, reducing the number of days in accounts receivable and selecting the right short-term investments for your needs. Effective management of your payments and receivables processes is key to making best use of your cash flow.
Simply put, this involves knowing when, where, and how your cash needs will occur and the best sources for meeting additional cash needs. It also means being prepared to meet these needs by developing good relationships with bankers and other creditors.
The starting point is developing a cash flow projection. Successful business managers and owners develop both short-term cash flow projections to help them manage daily cash, and longer-term projections to help them craft the appropriate capital strategy to meet their needs.
It is particularly important for small and medium-sized enterprises (SMEs) as they may have less access to credit and may need to wait longer for receivables. Effective cash management enables SMEs to meet their regular expenses such as rental and salaries while holding enough cash for unexpected costs.
Effective cash management is equally important for large companies that deal in a number of foreign markets, each with its own set of payments and receivables infrastructure, and often in different currencies.
In this case, what is required is a strong internal process and systems to manage international currency flows and reconcile cash positions globally. Integrating such an infrastructure with a cash management on-line solution will enable companies to gain that visibility and control to optimise their working capital across various countries.
Working with a partner who can provide you with the right cash-management solutions coupled with a global connectivity to provide seamless support across multiple markets will be a big advantage.
This will allow you to optimise the flow of funds in one country or across a number of countries. Services such as liquidity management, integrated payments and integrated receivables solutions can help you save time and money that flow to your bottom line.
In the current challenging business environment, implementing effective cash-management solutions tailored to your specific needs can not only keep you financially stable but also improve your business performance.
The writer is head of global payments and cash management, HSBC Singapore.
