What is cash management?

The term cash management refers to an area of finance that involves the collection, handling, usage, and (short-term) investing of cash, i.e. the activity of managing all the cash that is paid in and paid out by a company.

Cash management covers a broad area of finance, which also includes assessing cash flow, market liquidity, and investments.

There is more to effective cash management than simply avoiding insolvency. It also involves reducing days in accounts receivables, getting money-owed paid in on time, and doing everything possible to improve the business’ overall financial profitability.

Cash ManagementFor a small business, effective cash management could represent the difference between life and death.

Cash management – preventing insolvency

Managing cash flow is probably the most important task of business managers. If at any time a business finds itself unable to pay an obligation when it is due because there is not enough cash, the firm is insolvent. Companies go bankrupt mainly because of insolvency.


Effective cash management is crucial for the survival of a new or expanding business. When a small business has several clients, cash flow may be a challenge, even if it offers the best product on the market. A company with cash flow problems is at the mercy of the elements – it has no margin of safety in case of unexpected expenses.

Smaller enterprises may not always have access to the credit they might need. They must rely much more heavily on their own money to meet obligations.

A banking service

The term cash management in banking, which is also called treasury management, relates to certain services associated with cash flow offered mainly to large business customers.

It describes such services as zero balance accounting, automated clearing house facilities and cash concentration, but may also refer to all bank accounts provided to businesses of a certain size.

There are software programs available that automate how a company collects funds from customers. There are also Internet services, automated clearing houses, cash concentration and balance reporting, armored car services, and lockboxes (a P.O. box to which the company’s bank has access).

Banking regulations in several countries regarding cash management services offered by banks have become much stricter since the global financial crisis and the growth in international money laundering.

Although by definition cash refers only to coins and banknotes, in cash management businesses also work with cash equivalents – assets that can easily be converted into cash. This is becoming more and more common in this electronic age as the monetary system becomes less physical and more abstract.

Cambridge Dictionaries Online has two definitions for cash management:

1. Finance: “The activity of controlling the amounts paid and received by a company and the times when these payments are made and received.

2. Banking: “The management by a bank of its customers’ money in order to make sure that as much profit as possible is made for the customer.”

Video – cash management services and banking in the United States

In this Deutsche Bank video, Jeffrey Bisig talks about the importance of compliance and anti-money laundering (AML) tools, and the growing focus on service in cash management.