Precision Machines

Precision Machines
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Precision Machines
Cash management is important for any business’ survival and profitability. It does not simply mean that a business is healthy if it pays its bills and reinvests the rest of the money back into the business. Cash management involves complex processes aimed at ensuring that the company receives cash balance through maximization of cash balances that are not invested in the inventories and fixed assets in a way that prevents the enterprise from becoming insolvent. The reduction of a company’s financing costs and increasing the cash flows are important functions of cash managements. The paper recommends a sweep account for the company to ensure that the company achieves the above functions.
The first thing that the company should do is work on the Receivables and Inventories. It should do so to bring cash into the business as fast as possible. Some best practices to ensure this happens involves billing the clients promptly to enable the timely processing of payments to the firm. Additionally, a requirement for the clients to give an upfront deposit for every purchase is also a viable option to increase cash flow. Moreover, the company should consider giving discounts for early payments of the both receivables and inventory so that the customers to motivate the customers to offset their balances in time (Deloitte, 2016). All these attempts aim at increasing the cash coming into the business. After generating as much cash as possible, the company should then hold on to the money as long as possible.

Nevertheless, the company should pay their bills and rates in times to prevent incurring lateness fees and to ensure that the credit worthiness is not damaged in the process of holding the money.
While the above process ensures that the company optimizes on cash flow, opening a Sweep account is necessary. It allows the firm to reduce the financing costs related to access and use of the investment information. The firm then needs to determine the excess cash it has from the profits and establish how best the cash can be invested with minimal calculations. The sweep account is the best strategy for the company to invest its excess cash thereby reducing the financial costs involved in making investing decisions (CBP, 2016). The account is the safest method to generate interest from any amount that the company has in excess. It involves the investment of the excess money, determined from scheduled payments into overnight investments. The account is suitable for small companies but only reliable if the rates of operations are lower than the interests accrued.
The company could, however, choose from two sweep accounts; Controlled-Investment-Account or End-of-Day Sweep Account. The former requires the company to notify the bank of the following day’s payments every night. The bank then sweeps the rest of the money in the morning to an overnight investment leaving only the necessary funds in the company’s check account. However, this account inhibits the business from making electronic payments and wire transfers from its Check account. The later, End-of-Day Sweep account, is ideal for small companies. Instead of sweeping the cash in the morning, the bank waits till the evening to determine the amount to transfer into the overnight investment accounts. It, therefore, allows the business to make all scheduled payments and also cover the emergencies on time (CBP, 2016). Ultimately, a combination of the cash flow strategy and the financial costs strategy through the Sweep account enables the company to maximize on the cash flows in the business as well as minimize the financial costs.
References
CBP. (2016). 4 Effective Cash Management Strategies. Retrieved from http://www.comparebusinessproducts.com/briefs/cash-management-strategies
Deloitte. (2016). Make your working capital work for you – Strategies for optimizing your cash management. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/finance/ca-en-FA-strategies-for-optimizing-your-cash-management.pdf