What are cash management services and how can they help improve cash flow?
Cash management services include tools and resources that help manage cash flow, including making and taking payments, to enhance overall financial performance.
Updated 
9 min. read
Whether you run a small startup or medium-sized business, cash flow and cash management are important elements of financial health and business success. It can be a challenge to manage business revenue and expenses so that things are running smoothly, but that’s where cash management services come in and can support your business.
What is cash flow?
Before diving into cash management, it's essential to understand the concept of cash flow.
Cash flow refers to the amount of money that moves in and out of a business over a period of time. This flow can originate from various sources, such as operating activities, investment endeavors, or financing initiatives.
What is cash management?
Cash management, sometimes referred to as treasury management, encompasses a range of practices and strategies designed to help you monitor transactions, forecast future cash needs, maintain optimal cash reserves and optimize your business's cash inflows and outflows. The goal of cash management is to ensure your business's overall financial health is maintained while having sufficient liquidity to meet obligations and capitalize on opportunities.
To effectively manage cash, it’s also essential to distinguish between different financial components that impact cash flow.
Differentiating cash flow, accounts receivables, and accounts payables
An important distinction to make is that while cash flow reflects the actual movement of funds, accounts receivable represents money owed to your business, and accounts payable denotes the money your business owes.
Effective management of accounts receivable and accounts payable is integral to cash management. By focusing on these areas, you can enhance your cash flow. For example, strategies such as implementing efficient billing and collection processes can accelerate receivables.
The benefits of cash flow strategies
Implementing effective cash flow practices is essential for ensuring your business can handle operating costs, plan for growth or expansion, and anticipate potential cash shortages or surpluses. Let’s take a closer look at some key reasons as to why it’s important.
Increased financial stability
By effectively managing cash flow, your business can ensure it has enough liquidity to meet both short-term and long-term obligations. With good cash management, businesses can avoid situations where they can't pay employees, suppliers, or other essential expenses, preventing disruptions and financial distress.
Accurate cash forecasts also help businesses make better financial decisions and quickly adjust their plans when needed. Strong cash management practices maintain stability and keep your business resilient, even during tough economic times.
Risk mitigation
Effective cash management allows your business to safeguard itself from internal and external risks, including currency fluctuations, interest rate changes, and shifting market conditions.
By managing your cash effectively, your business can adapt more swiftly to financial pressures, maintaining stability even in uncertain times.
Cost reductions
Having a strong understanding of your cash flow allows you can make smarter financial decisions. This knowledge allows you to identify the best times to reinvest in your business or hold off on spending, ultimately reducing the need for high-interest borrowing and saving on costs.
Better strategic planning and growth
A strong cash management strategy allows you to create more accurate cash flow forecasts and budgets. This expertise helps you plan investments, allocate funds strategically, and set the stage for sustainable growth.
What are cash management practices?
Cash management practices involve strategically handling cash flows across three main categories: operating, investing, and financing activities.
Let’s review common areas where cash management practices are essential.
Operating activities
Operating activities encompass all the cash transactions related to the day-to-day operations of your business that contribute to its net income. Monitoring these cash flows ensures that your business generates enough cash from its primary activities to sustain operations and drive growth.
Sales of goods or services
For instance, cash generated from the sale of goods or services is considered an operating activity because it contributes to your business's revenue. This includes the payments you receive from customers for the products or services you offer.
Effective cash management practices can involve implementing simple methods for customers to make payments quickly, which can help you get paid faster. Whether you're accepting payments online or in person, adopting efficient methods enhances your cash flow management and ensures the timely receipt of funds.
Business expenses
On the other hand, cash paid out for expenses, such as purchasing inventory or raw materials necessary for producing goods, also falls under operating activities. Another common example is paying employees for their time.
Effective cash management practices in this area might include negotiating favourable payment terms with suppliers or implementing a payroll processing service to ensure timely and accurate payment to employees. By managing these expenditures efficiently, businesses can maintain a stable cash flow and operate smoothly without interruption.
Investing activities
Investing activities involve transactions related to acquiring and disposing of long-term assets, such as purchasing equipment or real estate.
Effective cash management practices in this area might include analyzing costs and benefits before making large purchases, and timing asset transactions to optimize cash flow. These strategies help businesses make smart investment decisions that support long-term growth and financial stability.
Financing activities
Financing activities involve dealings with long-term liabilities and owners' equity. This includes managing long-term debt, buying and selling stocks, and paying dividends.
Effective cash management practices include wisely timing stock sales or negotiating favourable loan terms.
What are cash management services?
Cash management services refer to various types of tools and resources that are designed to help you efficiently manage your cash, streamline payments and collections, and enhance your overall financial performance. You might find a variety of cash management services useful, depending on your business needs.
Some cash management services include:
Accepting payments:
Making it simple for customers to pay for your products or services can help you receive payments more quickly.
Merchant servicesEfficiently processing credit and debit card transactions is crucial for modern businesses. Merchant services, like BMO's partnership with Moneris® payment solutions, facilitate smooth management of in-store payments, with the potential for next-day deposits. BMO business banking customers can also enjoy unlimited Moneris® transactions.
Cheque processingTraditional cheque processing can be inconvenient. Tools like BMO DepositEdge® and the BMO Mobile Banking app allow for more efficient cheque processing. You can deposit cheques from any location at any time by simply scanning, transmitting, and depositing them electronically.
Direct depositsServices such as electronic fund transfers (EFTs) allow you to simplify cash management by collecting payments from customers across Canada with same-day deposits. These services also allow you to manage recurring withdrawals for expenses like paying for your lease or membership fees. Another option is of Interac e-transfers which enable you to receive or request payments up to $25,000 within Canada, with funds deposited instantly into your account.
Managing payments:
Cash management services can improve productivity with better management of expenses and payables such as paying vendors or employees.
Payroll processing
Making sure your employees are paid is a time-intensive, yet integral task for any business. Utilizing payroll processing services, you can free up time and resources. At BMO, we offer business owners special discounts for ADP® HR Payroll Management Services to help process payroll and facilitate HR services.
Business and corporate credit cards
Business credit cards and corporate credit cards allow for centralized management of company expenses. Various types are available to suit your business needs and business size, offering benefits such as rewards programs and currency flexibility.
Direct Deposits
Services like Electronic Fund Transfers (EFTs) and Interac e-transfers aren't just for accepting payments; they're also excellent for paying vendors, employees, and contractors.
Digital Banking
With BMO Digital Banking, you can manage your business cash flow from your mobile phone or computer. You can review transactions, pay bills, create recurring payments, and pay taxes.
Advantages of using cash management services for your business
Cash management services offer significant advantages for businesses of all sizes, such as enhanced cash flow visibility, reduced operational costs through automation, increased security for cash transactions, and better decision-making with precise financial data.
The advantages of using cash management services include:
- Better cash flow visibility: Provides real-time views of your cash positions for improved liquidity and proactive decisions.
- Reduced costs: Lowers expenses by automating cash handling to streamline operations.
- Faster fund access: Enables quick access to your funds with automated systems and efficient deposits.
- Precise financial reporting: Offers accurate data for better financial planning and forecasting.
- Improved efficiency: Frees up your time by automating manual cash handling tasks, allowing you to focus on core activities.
- Enhanced decision-making: Delivers accurate financial data to help you make informed and strategic business decisions.
Industry examples of cash management services
Cash management services can add value to businesses across major industries. Some examples include:
Retail: For use in inventory management, point-of-sale (POS) systems for accepting payments (in-store and online). Also helpful with sales tracking, quick deposit payment processing and with automating payroll.
Manufacturing: Helps businesses make international payments to suppliers for raw materials, optimize automatic bill payments for utilities and insurance, streamline other payments, and manage complex collections processes within the supply chain.
Hospitality: Services can be used for a wide array of things. From managing online and tableside orders, to streamlining online orders across third-party platforms, floor plan and table management, automating payroll and to paying suppliers.
Not-for-profit: Fundraising is vital to a non-profit organization’s ability to help the community it serves. That’s why debit and credit card processing for donations can play such an important role. Implementing flexible payment processes and hardware – such as more portable solutions for street canvassing – is helpful too, as are real-time payment reports.
As we’ve seen, cash management helps your business balance the money coming in and out. Considering its importance, cash management solutions can prove significant to the long-term sustainability of your venture. To learn more about how BMO’s cash management solutions can help your business thrive, reach out.
FAQs
Electronic funds transfers (EFTs) are transactions that enable funds to move electronically among financial institutions, bank accounts, and/or individuals within Canada.
A wire transfer is a secure way to send money electronically between people or businesses, either domestically or internationally.
EFTs & Interac e-Transfers are both domestic transactions that can be sent within Canada. EFTs are batch payments, so transactions are processed at defined and set times, while Interac e-transfers are processed in near real time and are irreversible once funds are deposited into the account. EFTs are ideal for scheduled or bulk payments, while Interac e-Transfers are a fast, low-cost way to pay employees and/or vendors.
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