Cash management: What is it – and how’s it done?

Whether you run a small startup or a well-established company, your cash flow determines whether you can pay your bills, invest in business growth and rest easy at night. That’s why good cash management is so crucial.

Effective cash management is what ensures that your company always has enough capital to cover costs, avoid unnecessary risks and create the best conditions for generating a profit.

But how does cash management work in practice, and what strategies and tools can you use to optimise your business’ cash flow? We’re covering the basics of cash management, how it’s done and how you can create a solid financial foundation for your business.

What is cash management?

Cash management is about collecting and keeping track of a company’s cash – about managing the day-to-day handling of cash to ensure that the company can meet its financial obligations.

You can think of cash management as managing the company’s ‘wallet’ to ensure there’s always enough available cash to cover short-term needs.

Cash management involves:

• Managing bank accounts and transactions
• Optimising receivables and payables
• Investing surplus cash
• Using treasury tools – e.g. liquidity buffers
• Implementing fraud prevention methods

Successful cash management helps you avoid unnecessary costs and steer clear of major financial challenges to build a stable, successful business.

Cash flow management vs cash management – what’s the difference?

Where cash management is about the day-to-day handling of cash to ensure liquidity, cash flow management is a broader, more forward-looking process focused on monitoring and optimising the timing of cash inflows and outflows.

Cash flow management involves:

• Forecasting future cash needs
• Identifying potential cash shortages or surpluses
• Adjusting budgets and expenses to maintain liquidity
• Aligning cash flow with long-term financial goals
• Scenario planning for economic uncertainty

Cash flow management is no less important than cash management – especially if you’re working to build financial agility. It’s also so closely related to cash management that it’s hard to talk about one without the other, which you’ll likely notice throughout this article.

Why is cash management so important?

You’ve probably heard the saying: money makes the world go round. That obviously applies to the world of business, too – and that’s why cash management is so important.

Cash management affects how well a company runs, as well as its ability to invest properly and grow sustainably.

It’s not just about having money – it’s about having the right money in the right place, at the right time.

Here are some of the benefits good cash management brings to your business:

• Keeping track of liquidity: With good cash flow management, your company always has enough money to pay employees, suppliers and bills on time. It ensures your company can stay afloat and avoid unexpected cash shortages – and the problems that come with them.
• Financial stability and solvency: Good cash management allows your business to remain stable – even in uncertain times, or when unexpected costs crop up. In short, it allows you to keep going without resorting to expensive emergency loans.
• Reduced costs: If you know when money is coming in, you can reduce your need to rely on credit lines or take out loans – and that saves you money in the long run.
• Maximised profits: By effectively managing your cash flows, you can make smarter investments to maximise your ROI without risking liquidity.
• Risk management: Cash management helps protect your business from financial risk such as currency fluctuations, interest rate increases and market changes. A good cash level helps you manage these risks and adapt more easily in a volatile economy.
• Strategic planning and growth: Good cash management makes it easier to create accurate forecasts and budgets – a crucial aspect of strategic planning. This allows you to plan ahead for sustainable growth and future expansion.

5 best practices for effective cash management

Cash management is an ongoing task that requires effective strategies which business leaders and CFOs must work together to create and oversee.

Fortunately, there are ways to make the process run smoother. For instance, many companies choose to outsource their cash management to service providers who help them meet payment obligations, plan ahead and maintain financial stability.

There are also a number of useful cash management tools that can help make the job easier. For example, if you have an account with Pleo, you’ll soon be able to benefit from our new Cash Management Suite which will help you take control of your company’s liquidity – it’s fast and easy.

Even so, it’s important to have the right strategies in place to ensure your cash management is effective and supports your business growth and stability. Below, we’ll cover five best practices for achieving exactly that.

1. Gain real-time cash visibility

Having a clear, real-time view of cash balances across all accounts is essential for making informed decisions. By levering automated treasury systems and real-time dashboards, you can track cash positions, centralise cash management and optimise fund allocation. Instant visibility also allows your finance team to respond quickly to market changes and unforeseen cash needs – in short, it boosts the financial agility of your business.

2. Optimise receivables and payables

Efficiently managing inflows and outflows is key to maintaining a healthy cash position. You can boost your receivables by offering discounts for early payments, automating invoices and sending friendly reminders to ensure nothing’s left on read. On the payables side, you can retain cash longer without disrupting operations by negotiating extended payment terms with suppliers and adopting just-in-time payment strategies.

3. Implement robust cash flow forecasting

A strong cash flow forecast helps you anticipate liquidity needs and plan accordingly. Regularly updating short-term and long-term forecasts ensures alignment with business goals and market conditions. Scenario planning – i.e. looking at how potential economic disruptions might affect your cash flow – enables you to build resilience and avoid financial strain.

4. Maximise liquidity with strategic cash investments

If you want your money to grow, keeping excess cash in accounts that don't earn much interest is a bad idea. Instead, invest surplus cash in low-risk, short-term instruments – like money market funds or treasury bills – to generate returns whilst keeping the cash easy to access. In addition, maintaining a liquidity buffer ensures your business can handle unexpected expenses or downturns without things getting too tight.

5. Strengthen fraud prevention and risk management

Protecting cash from fraud and mismanagement is essential to maintaining financial security. You can mitigate risks in a variety of ways – e.g. implementing dual approvals for high-value transactions, using bank reconciliation tools to detect anomalies and adopting secure payment methods with multi-factor authentication. Being proactive about fraud prevention keeps your assets safe and helps ensure financial integrity.

Together, these best practices can help you enhance liquidity, reduce risk and position your business for sustained financial agility. Effective cash management doesn’t just protect your business during economic uncertainty – it supports long-term growth and stability, too.

Key capabilities: What to look for in a cash management solution

The right cash management solution helps ensure you have the right money in the right place at the right time. It makes it easier to do everything from paying the company bills to investing in growth and managing risk.

But what does that look like in practice?

Here’s an overview of some of the most important cash management and cash flow forecasting capabilities to look for in a cash management solution:

• Implementation and ease of use: The more complicated the solution, the more time you’re likely to waste when implementing it. Look for a solution with a user-friendly interface, intuitive templates and automation tools to optimise your processes.
• Dynamic reporting: You want to be able to track changes to company balance over time. Look for a solution that offers cash position worksheets and period based views that give you a personalised summary of your balances and a categorised summary of actual and forecasted daily cash movements.
• Global positioning: It’s important to be on top of your cash positions. Choose a solution that consolidates cash balances across multiple banks, currencies and regions to give you a centralised overview of global cash positions.
• Liquidity reporting: Keeping up with liquidity is essential. Look for a solution that tracks and analyses liquidity levels – this ensures optimal cash availability for your operations and helps you avoid excess idle funds.
• Historical data: When it comes to forecasting, the past is just as important as the present. For more reliable forecasting, look for a solution that uses past financial data to improve predictive accuracy and spot cash flow trends.
• Seamless integration: There’s no point investing in a tool that doesn’t work with your existing systems. Choose a solution that integrates seamlessly with your accounting, treasury and ERP systems for smooth data flow and an up-to-date overview of your finances.
• Forecast customisation: No two businesses’ needs are exactly the same. Look for a solution that offers flexible forecasting models that can be tailored to your business needs to support your scenario planning.

Manage cash flow effectively with Pleo

With the right tools in your kit, you can streamline cash management and take full control of your company finances – and that’s exactly what we’re here to help you do.

Pleo’s new Cash Management Suite makes cash management simple. Stay in control of your spending and optimise your finances – all from one easy-to-use platform.

Get a real-time, centralised overview of your bank accounts, Pleo Wallet balances and financial activities. Automate your transfers between all your bank accounts and Pleo Wallet with advanced workflows and integrations. All of this – and much more.