Every successful business has a pool of cash that supports day-to-day business operations.
It increases with revenue from sales and contributions and decreases with spending on inventory, marketing, labor, and other expenses.
The uncertainty of cash inflows and outflows creates the challenge of ensuring that sufficient funds are available at all times to support the operating cycle.
Borrowing becomes necessary when cash flows are insufficient to cover disbursements.
When inflows exceed outflows, cash is used to repay borrowings or purchase short-term investments until cash is needed to cover future expenses.
Financial officers need timely information to control and properly use their funds throughout the cash cycle.
The basic cash management process provides this information in a timely manner.