Cash Management – Standard Operating Procedure

Description

Standard Operating Procedure – Cash Management

The Importance of Cash Management

In almost, all companies Cash is the primary asset.  Importantly, Individuals and companies use cash regularly to settle their debt obligations and operating expenses. e.g., taxes, employee salaries, inventory purchases, advertising costs, and rents, etc. Hence, it is very much important to manage it from the company perspective.

Identically, Cash is used as investment capital to be allocated to long-term assets, such as property, plant, and equipment (PP&E) and other non-current assets. Furthermore, Excess cash after accounting for expenses often goes towards dividend distributions.

What is the Standard Operating Procedure?

Importantly, an SOP is a procedure specific to your operation that describes the activities necessary to complete tasks in accordance with industry regulations, provincial laws or even just your own standards for running your business. Significantly,  Any document that is a “how-to” falls into the category of procedures.

What Is Cash Management?

Undoubtedly, In an organization, chief financial officers, business managers, and corporate treasurers are usually the main individuals responsible for overall cash management strategies, stability analysis, and other cash-related responsibilities. However, many organizations may outsource part or all of their cash management responsibilities to some service providers.

The cash flow statement is the main component of a company’s cash flow management. Similarly, The cash flow statement comprehensively records all of the organization’s cash inflows and outflows. It includes cash from operating activities, cash paid for investing activities, and cash from financing activities. The bottom line of the cash flow statement shows how much cash is readily available for an organization.

     The Cash Flow Statement

It should be noted that the cash flow statement is divided into three parts: investing, financing, and operating activities. Importantly, The operating part of cash activities is based heavily on the networking capital.  At the same time, It is presented on the cash flow statement as a company’s current assets minus current liabilities. Businesses strive to make the balance of the current asset exceed the current liabilities balance.

Similarly, The other two parts of the cash flow statement are somewhat more straightforward with cash inflows and outflows connected to investing and financing, such as investments into real estate, buying new equipment and machinery, and originating stock repurchases, or paying out dividends as part of the financing activities.

     Internal Controls

Furthermore, there are many internal controls utilized to manage and achieve efficient business cash flows. Some of a business’s major cash-flow considerations comprise the average length of account receivables, write-offs for uncollected receivables, collection processes, rates of return on cash equivalent investments, liquidity, and credit line management.

What Does Working Capital Include?

Generally, working capital includes the following:

1. 1. Current assets

• • Cash
  • Accounts receivable within one year
  • Inventory

1. 2. Current liabilities

• • Accounts payable due within a year
  • Short-term debt payments are due within one year

Explaining further, On the cash flow statement, organizations usually report the change in working capital from one reporting period to the next in the operating section of the cash flow statement. Considering the fact, that the net change in working capital is positive, an enterprise’s increased its current assets available to cover current liabilities.

Simultaneously,  a net change in working capital is negative, an enterprise’s increased its current liabilities, which reduces its ability to pay the liabilities efficiently.  Make sure, A negative net change in working capital lowers the total cash on the bottom line as well.

What is Cash Management Procedure?

Therefore, The Cash Management Procedure provides methods for planned and proper use of cash resources, preventing cash shortfalls, and balancing risk, liquidity, return, and cost of cash accounts.  Also, It applies to Finance and Accounting departments.

Cash Management Responsibilities:

Certainly, The CFO (Chief Financial Officer) is responsible for overseeing cash management processes to ensure proper cash availability and best practices in cash management, and for completing the CASH MANAGEMENT PLAN.

In the meantime, Top Management is responsible for approving the CASH MANAGEMENT PLAN.

Cash Management Definitions:

Liquidity – Ability to convert an asset into cash quickly and without a price discount.

Sweep Account – An account that automatically transfers excess balances out of a cash account and into interest-bearing accounts, or vice versa (e.g., from a money market account into a checking account to prevent a shortfall/overdraft).

Liquidity Tree – Dispersing cash among different types of accounts (daily, medium, and long term) to improve return, balance risks, and maintain needed access to funds.

        Daily Account – An account that provides immediate access to funds but typically provides no rate of                return, such as a checking account.

Medium Term Account – An account that has limited fund availability (e.g., only two withdrawals allowed per month) but provides a better rate of return than a checking account; an example is a money market account.

Further, Cash Management refers to the collection, handling, control, and investment of the organizational cash and cash equivalents, to ensure optimum utilization of the firm’s liquid resources.  Most importantly, Money is the lifeline of the business, and therefore it is essential to maintain a sound cash flow position in the organization.

Accordingly, Cash management is the process of collecting and managing cash flows. Cash management can be important for both individuals and companies. In business, it is a key component of a company’s financial stability. For individuals, cash is also essential for financial stability while also usually considered as part of a total wealth portfolio.

In Short, having the right money, in the right place at the right time to meet the company obligations in the most cost-effective way.

Receivables Cash Management

Further, Any amount which the company has earned however not yet received, i.e. its outstanding and is expected to be received in future, is known as receivables.  An organization must manage its receivables to maintain the surplus cash inflow. It helps the firm to fulfil its immediate cash requirements.

Obviously, The cash receivables must be planned in such a way that the organization can realize its debts quickly and should allow a short credit period to the debtors.

Payables Cash Management

Finally, The payables refer to the payment which is unpaid by the organization and is to be paid off shortly. Hence, the organization should plan its cash outflow in such a manner that it can acquire an extended credit period from the creditors.

Similarly, This helps the firm to retain its cash resources for a longer duration to meet the short-term requirements and sudden expenses. Even the organization can invest this cash in a profitable opportunity for that particular credit period to generate additional income.

Table of Contents

In addition to the above description, the Content of the document can be customized according to the company requirement depending on the company hierarchy and the environment.  Especially, the document is so flexy to convert and applies to any environment.

I.	Document and Change Control Information. 3
II.	Functional Organizational Structure. 4
III.	Objectives of the process. 4
IV.	Background and Learning Material.  5
V.	Common Abbreviations. 17
VI.	Involved Personnel 17
VII.	Basic Requirements. 18
VIII.	Input Requirements. 18
IX.	Output. 18
X.	Flowchart. 19
XI.	Activities/Steps. 20

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Accept Their Help
As important as it is to offer help, it is just as important to accept it when needed. If a colleague says they would like to join in and help you get things done, take their offer because this will make them feel good. This good feeling will then boost their impression of you. This kind of give and take at work ends in a great work colleague relationship and one that may last beyond the actual work aspect.
Build Relationships Outside the Office
Your co-workers don’t have to become your best friends. But it is very helpful to build friendships outside the walls of the office. When there are off-site, team-building activities, join in. Go beyond that and make plans with your co-workers.  Meet up for a game of soccer or drinks after work. The time you spend casually chatting about issues that don’t relate to work is some of the moments when you will bond the most.
Spend Lunchtime Together
This is an easy way to get to know those you work with. Are you the guy who always takes a walk during lunch? Do you head out on a daily basis to buy fast food on the run? The lunchroom is often where the most jokes and laughs are shared together by co-workers, so make it your plan to eat lunch in the break room at least two times per week.
Your co-workers can make or break your employment, which consumes a large percentage of your waking hours. It is you to build the relationships that are set in front of you through your place of work. Input into these relationships and they just might turn out to be some of your closest friends for life.
Accept Their Help
As important as it is to offer help, it is just as important to accept it when needed. If a colleague says they would like to join in and help you get things done, take their offer because this will make them feel good. This good feeling will then boost their impression of you. This kind of give and take at work ends in a great work colleague relationship and one that may last beyond the actual work aspect.
Build Relationships Outside the Office
Moreover, Your co-workers don’t have to become your best friends, but it is very helpful to build friendships outside the walls of the office. When there are off-site, team-building activities, join in. Go beyond that and make plans with your co-workers to meet up for a game of soccer or drinks after work. The time you spend casually chatting about issues that don’t relate to work is some of the moments when you will bond the most.
Spend Lunchtime Together

Furthermore, This is an easy way to get to know those you work with. Are you the guy who always takes a walk during lunch? Do you head out on a daily basis to buy fast food on the run? The lunchroom is often where the most jokes and laughs are shared together by co-workers, so make it your plan to eat lunch in the break room at least two times per week.

Your co-workers can make or break your employment, which consumes a large percentage of your waking hours. It is up to you to build the relationships that are set in front of you through your place of work. Input into these relationships and they just might turn out to be some of your closest friends for life.