Quite often the terms, Cash Management, Liquidity Management and Working Capital Management seem to be used interchangeably. These functions may be related and may provide effective inputs to each other, but, their scope under management is distinctly different.
Working Capital Management involves your current assets in Inventory and Receivables and your current liabilities under Payables. The scope under this function is to manage the amount required as Working Capital, its duration and different ways of financing it. Please see my earlier blog for more details in managing this function.
Cash Management involves management of your Cash Flows. Under its scope there are three categories of Cash Flows to be managed:
· Cash Inflows
· Cash Concentrations
· Cash Disbursements
The objective is to establish and manage cost effective processes that will speed up your Collections and Concentration and optimally delay your Disbursements.
Liquidity Management function is to manage availability of Cash to make payments on your obligations as and when they become due. Need for Liquidity Management arises from the fact that businesses have uncertain and asynchronous timings between their Cash Receipts (from Sales) and their various other payment obligations. Decisions on when, how much and how to finance for any gaps and decisions on how to invest excess liquidity are core parts of this functionality.
Working Capital Management involves your current assets in Inventory and Receivables and your current liabilities under Payables. The scope under this function is to manage the amount required as Working Capital, its duration and different ways of financing it. Please see my earlier blog for more details in managing this function.
Cash Management involves management of your Cash Flows. Under its scope there are three categories of Cash Flows to be managed:
· Cash Inflows
· Cash Concentrations
· Cash Disbursements
The objective is to establish and manage cost effective processes that will speed up your Collections and Concentration and optimally delay your Disbursements.
Liquidity Management function is to manage availability of Cash to make payments on your obligations as and when they become due. Need for Liquidity Management arises from the fact that businesses have uncertain and asynchronous timings between their Cash Receipts (from Sales) and their various other payment obligations. Decisions on when, how much and how to finance for any gaps and decisions on how to invest excess liquidity are core parts of this functionality.
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