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Improvement and Optimization of Cash Management in Companies

Improvement and Optimization of Cash Management in Companies

Although cash is the basis of business activity , productivity and sustainability, some entrepreneurs tend to neglect it. If this is the case, it is crucial to delegate its management to experienced professionals who will ensure the day-to-day management necessary to maintain the financial balance of the company . What are the best practices to optimize cash management? What are the key points to improve the profitability, activity and financing of treasury?


Good treasury management involves being able to calculate the amount of working capital required for the business cycle of the business and to maintain equivalent cash available at the bank account level.

To meet the company’s financial commitments, it is important to properly calculate its working capital requirements to determine the financing required and the maturities that will have to be taken into account for its invoices and receipts. Good cash management involves making it tend to zero. The surpluses will be placed more or less long term to make them grow. The parameters on which you will need to be vigilant are the following:

  • Turnover and impact on cash : any good manager will tell you, a colossal turnover does not always go with a pair of perfectly held cash. Increasing one does not automatically improve the other. The more you have a large turnover, the more money you will need and the less your cash will be stable. To remedy this, you will either have to negotiate short-term financing with your banker , or increase the permanent capital .
  • Working capital requirement and cash flow impact : Once you have properly calculated your working capital requirements, you will need to monitor its upward or downward trend and adjust it to a limited average. The reflexes to be acquired are to decrease the customers’ debts and to reduce the stocks . All the actors in the company must be involved in these decisions in order to identify the needs and the lines of funding to focus on.
  • Financing and impact on cash flow : Contrary to what one might think, self-financing is not the most sensible solution for a company. One might be tempted to save the costs of borrowing, but this choice is not optimal. It would be more advantageous to use medium- or long-term credits for better cash flow . Equity or cash surpluses are more advantageous to invest, especially when investment rates are higher than borrowing rates.
  • Profitability and impact on cash flow : A true commercial policy must define the breakeven of a company and the means to achieve it. Dry losses can accumulate during the activity due to lack of control and forecasting of expenses, resulting in an inability to make a profit. These losses inevitably lead to a reduction in capital and a deterioration in working capital and thus in cash. In this case, a capital increase is needed to restore the balance of equity.


A rigorous and optimal management of the treasury implies in addition a zero balance, successful investments in more or less long term. For the choice of the latter, it is first necessary to define the needs of the company in terms of availability of funds and performance . Since the crisis has greatly affected rates, it is crucial to think carefully about how to invest cash. If a negative cash flow generates costs to be paid (agios, expenses …), a positive cash flow pays little to the company. This could thus motivate the investment of its cash whether for investment financing or remuneration.

Thus, the surplus cash could be used to generate interest . To do this, you need to have visibility into future business transactions to avoid any miscalculation. To think about placement, the company must have a sufficient balance for its operating cycle while thinking to keep a margin of safety. In choosing the most suitable investments for the company, it is the job of the company to define the job it will be used for. Indeed, to collect financial products, it is wise to invest in the medium term, whereas if it is just a saving or a preventive measure, it is better to keep its cash available . For short-term cash investments, it is common to use paid current accounts, negotiable certificates of deposit or treasury funds. One can cite the money market SICAV or the savings books. Another possible alternative is to take out life insurance that allows for a high availability and flexibility of funds and relatively good returns.

If you want to invest for a fixed term and a fixed rate, the DAT (Term Deposits) guarantee you a fixed rate and the recovery of your initial capital plus interest. For greater flexibility, mutual funds (UCITS) allow you to refine the amount of your investments and offer a performance indexed to changes in market rates. For medium-term investments, there are term deposits and term deposits at a fixed rate and for a minimum investment period of one month . Alternatively, medium-term notes are negotiable for longer and more than one-year investment periods. The other choice is short-term bonds that are somewhat less guaranteed but better-remunerated and with a minimum investment period of one year.

For these crucial decisions, it is important to be accompanied in choices by the experts of his company as well as by the professionals concerned , what is your opinion?