Cash management
Cash management balances liquidity, risk and return. Businesses hold cash for routine transactions, protection against unexpected needs and possible opportunities. Forecasting, reliable payment controls and suitable facilities help determine the required buffer. Surplus cash can be invested, but security, accessibility, maturity and currency should fit the business's needs; the highest quoted yield is not the only objective. Cash management models simplify this trade-off under stated assumptions. A low cash balance is not automatically efficient if it causes missed payments, emergency borrowing or disruption.
Worked example
A company expects payroll of $80,000 next week and holds $100,000. It keeps the required payroll and contingency amount readily available rather than placing all $100,000 in a three-month deposit that cannot be accessed economically.
Common mistake
Investing a forecast operating cash requirement in a product whose maturity or withdrawal restrictions do not match the payment date.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |