Cash management is a subset of treasury management that focuses on the daily management of a company’s cash flow and liquidity to ensure it can meet its short-term financial obligations. Cash management typically involves collections, disbursements, banking, and short-term borrowing and investment.

While people often use cash management and treasury management interchangeably, treasury management is the “big picture.” It covers all aspects of managing a company’s financial assets, dealing with longer-term borrowing and investing; capital management; and operational, financial and reputational risk.

Still, the end goal for both cash management and treasury management are the same: maximizing liquidity while minimizing cost and managing risk within the overall framework of the company’s broader strategic plan.

Why cash management is important

Even highly profitable companies can find themselves in serious financial trouble if they don't manage their cash effectively to ensure it is available when they need it. So it is no wonder that 73% of treasury professionals report that cash management and forecasting is one of their top priorities, according to the 2025 AFP Treasury Benchmarking Survey Report.

Effective cash management helps companies remain resilient and agile, so they can meet their financial obligations — such as paying vendors, covering payroll and handling unexpected expenses — regardless of the challenges that come their way.

By optimizing collection processes, timing payments strategically and maintaining appropriate cash reserves, treasury professionals help companies create a buffer against market volatility and unexpected financial demands.

Cash management activities

The five core cash management activities performed by treasury professionals are:

1. Maintaining liquidity. Using the most cost-effective methods to ensure your company can meet its current and future financial obligations in a timely manner.
2. Optimizing cash resources. Establishing policies, procedures and strategies to manage operational cash balances while maintaining sufficient liquidity. Putting any excess cash to work, either by investing it (to protect principal while earning some interest) or using it to pay down debt, thereby reducing interest expense.
3. Managing risk. Identifying, measuring, analyzing and mitigating potential threats to your company — including financial risks (e.g., interest rates, forex, commodities), regulatory risks and operational risks (e.g., sovereign, supplier, counterparty, cyber and fraud).
4. Maintaining access to short-term financing. Establishing and maintaining access to short-term credit facilities while minimizing borrowing costs. Short-term credit facilities are often used to finance working capital needs (e.g., accounts receivables or inventory) and provide bridge financing for capital investments.
5. Managing investments wisely. Investing excess funds for short- and long-term needs. Preserving the principal is generally the first priority, followed by ensuring liquidity and maximizing overall return. Investment activities should always be in alignment with a board-approved investment policy.

Optimizing cash flows for effective cash management

Understanding and optimizing cash flows is key to effective cash management. Treasury professionals oversee a range of activities — including calculating cash positions, monitoring balances and managing transactions — which all depend on accurate cash flow visibility.

Treasury professionals need to monitor four types of cash flows:

1. Cash outflows: All disbursements to employees, suppliers, lenders, tax agencies and shareholders, i.e., the procure-to-pay timeline.
2. Cash inflows: Money coming in from customers, loans, investments and other sources, i.e., the order-to-cash timeline.
3. Internal liquidity management flows: Internal transfers between your company’s bank accounts that help you pool funds efficiently and avoid the costly situation of simultaneously borrowing and investing cash.
4. External liquidity management flows: How you handle surplus cash (through investments) or cash shortages (by selling investments or drawing on credit lines).

Cash forecast

Effective cash management requires an understanding of not only immediate cash needs but also estimated future cash needs. By providing an estimate of a company’s future financial position, cash forecasting identifies potential cash excesses or shortages.

There are three primary types of cash forecasts:

1. Short-term forecasts use a direct method to track cash inflows and outflows, providing a near-term view of liquidity.
2. Medium-term forecasts anticipate cash flows over the next 3-12 months.
3. Longer-term forecasts look forward beyond a year and rely on a top-down approach to project cash movements based on forecasted income and balance sheet changes.

With the insights gained from cash forecasts, treasury professionals can strategically plan key cash activities, such as scheduling transfers, funding disbursement accounts, managing bank compensation and making informed short-term investment and borrowing decisions.

Cash conversion cycle

To track cash flows through working capital accounts, treasury professionals look at the cash conversion cycle (CCC). This cycle begins when a company purchases inventory and ends when it collects payment from customers.

The three CCC components are:

1. Days Inventory (DI): How long products sit in inventory before being sold.
2. Days Receivables (DR): How long it takes a company to collect payment after a sale.
3. Days Payables (DP): How long a company takes to pay its suppliers.

From a cash management perspective, a shorter CCC is often favorable. Being able to convert investments in inventory and receivables into cash more quickly results in improved cash flow, which reduces liquidity risk and allows the company to invest in strategic objectives.

Strategies to improve cash management

Cash management is the lifeblood of business operations, so it’s important to keep seeking ways to improve it. Some strategies treasury professionals can use to boost cash flow for better cash management include:

Enhancing accounts receivable

• Issuing invoices promptly after goods or services are delivered to reduce invoicing float and accelerate the payment process. Invoicing float is the delay between when a customer places an order and when the customer actually receives the invoice for that order. It’s often caused by order entry and billing system delays.
• Incentivizing early payments by offering discounts to customers who pay ahead of schedule.

Managing accounts payable

• Negotiating more favorable payment terms with suppliers the company has strong relationships with.
• Leveraging the full extent of payment terms without incurring penalties or damaging supplier relationships.

Creating more comprehensive cash forecasts

• Updating forecasts regularly to reflect any changes to the company’s financial status or the business environment, so the company has an accurate picture of its forecasted financial position.
• Collaborating with FP&A and business units to gather sufficient information to create a forecast that can aid strategic decision-making.

Controlling operational expenses

• Conducting bank fee analysis to uncover pricing errors, close unnecessary or obsolete accounts, and discontinue unwanted or irrelevant services.
• Reviewing expenses to see if there are any unnecessary areas that can be cut or rates that can be negotiated.

Maintaining a cash reserve

• Building a cash reserve and/or establishing a line of credit can provide a buffer against unexpected financial challenges.

Leveraging technology

• Automating manual processes to reduce errors and free up time for strategic tasks.
• Leveraging AI-powered analytics to identify patterns in cash flow that can aid in more accurate cash forecasting.

Cash manager responsibilities

A cash manager directs a company’s daily cash management operations. Depending on the size of the company, the cash manager may report to the treasurer or assistant treasurer. Responsibilities of a cash manager include:

Daily operations management

• Direct global payments and daily cash administration
• Manage bank accounts and banking relationships
• Review and approve non-repetitive wire transfers
• Administer the corporate credit card program
• Resolve payment denials and fraud situations

Cash flow management

• Forecast and monitor cash flow (weekly, monthly, quarterly)
• Work with project teams to accurately predict cash flows for up to two years
• Perform timely reconciliation of cash applications and disbursements
• Monitor cash transactions and investigate unusual items

Financial optimization

• Manage currency exposure and risk
• Optimize the use of capital
• Review bank and merchant card fees
• Coordinate fund transfers between accounts as directed by leadership

Process improvement

• Review and drive improvements in cash management processes
• Evaluate operational procedures and controls to maximize efficiency
• Complete documentation for new and existing processes
• Support internal/external audits and SOX compliance

Reporting

• Prepare cash flow reports and analyze variances
• Provide monthly/quarterly fee reporting
• Maintain accuracy in financial transactions and reports
• Assist with financial reporting as needed

See the full cash manager job description for more information on reporting relationships and qualifications.

Cash management solutions

Advances in technology are reshaping the cash management landscape, providing increased efficiency and accuracy to operations and better insights for strategic decision-making. One tool that treasury professionals often use to improve their cash management operations is a treasury management system (TMS), which provides functions such as:

• Daily cash position management: The TMS acts as a central hub for collecting bank data across the organization. It pulls in previous-day and current-day data using direct bank connections via APIs or secure protocols like SFTP, SWIFT or other secure networks. This eliminates the need to juggle multiple bank communication tools as the TMS handles the connectivity process and provides alerts on any reporting failures, incomplete files or connection issues.
• Real-time cash visibility: Once the data is collected, the TMS prepares and reconciles the company’s daily cash position using both bank data and forecasting information. It provides a comprehensive view of the company’s positions across banks, accounts, entities and geographies, either in real time or near real time.
• Enhanced cash flow forecasting: The TMS can accept direct forecast inputs from teams across different locations, import data from an ERP or data warehouse and build forecasts based on available information. The system validates and consolidates these various inputs, thereby dramatically improving both the quality and efficiency of the forecasting process.
• In-house banking capabilities: Many TMSs provide in-house banking functionality, allowing the treasury function to act as a bank for a group of the company’s operating businesses. The in-house bank can be tasked with managing payments, cash pooling, intercompany activities (loans and license agreements) and foreign exchange. With a technology-enabled in-house bank, treasury can centralize these operations without developing expensive infrastructure, enabling more strategic and flexible cash management.

Find the right cash management solution for your company using the AFP Treasury and Finance Marketplace.