What is Cash Management System? What is advantages of using
CMS Facility?
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Answer Posted / abdillahi arab ga&
Four Steps to a Healthy Cash management
Healthy cash flow is essential to the success of a small
business. You may have the best service or product around,
your employees and customers may love you, your office may
be well organized, but if you don’t have the money to buy
inventory or pay bills, you can’t keep your business
running. Many business owners make the mistake of believing
cash flow is largely out of their control. On the contrary,
the following steps can really help.
1. Analyze your financial condition
Financial analysts, credit providers and knowledgeable
investors rely heavily on financial ratios to judge the
health of a firm. You should use these tools as well.
Commonly used ratios can help you analyze your pricing
strategy, level of overhead, liquidity, the health of your
cash flow, your average collection period, the
appropriateness of your collection terms and your inventory
turnover rate.
2. Improve your cash management
When it comes to the cash flowing through your financial
accounts, your goals should be to ensure that incoming funds
spend as much time as possible earning interest or dividends
for your benefit and that outgoing funds are available when
needed. With a traditional business checking account,
meeting these seemingly simple goals can be a complex task.
You will have to move funds manually into a separate money
market account in order to earn interest or dividend income
and back into your checking account to cover disbursements
when due.
An alternative is a central asset account, which combines
traditional checking features, investment and borrowing into
a single account. A central asset account saves you time and
effort by automatically putting your cash where it needs to
be, when it needs to be there. And by keeping your cash in
interest-bearing accounts right up until the moment
disbursements clear your account, a central asset account
can also help increase your return and your bottom line.
3. Even temporary fluctuations
No matter how efficiently you manage your cash flow, there
may be times when your business needs more money than it has
on hand. This is why adequate credit resources are
essential. A business line of credit is useful and
convenient because it can be used as needed, paid down and
reused without reapplying. When a line of credit is
integrated with a central asset account, credit is
automatically accessed when needed. And incoming funds
automatically go to pay down your loan balance, reducing
borrowing time and interest expense.
4. Invest surplus cash
Although part of your business capital needs to be liquid,
most businesses have some capital that can be invested in
short- and intermediate-term securities for potentially
higher yields. A broad array of investments can be purchased
within a central asset account. And you can sell securities
in your account at any time, or, if appropriate, borrow
against their value2, to meet working capital needs. Be sure
to discuss the risks of borrowing against your securities
with your Business Financial Adviser.
Today’s business environment changes rapidly, and as a
business owner, you need to regularly review your cash flow
and cash management policies to ensure that they are helping
to keep your business competitive.
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