Managing short-term cash flows involves minimizing costs. The two major costs are carrying costs, the return forgone by keeping too much invested in short-term assets such as cash, and shortage costs, the cost of running out of short-term assets. The objective of managing short-term finances and doing short-term financial planning is to find the optimal trade-off between these two costs.
The starting point for good cash flow management is developing a cash flow projection. To forecast short-term cash flows, a financial manager needs to:
Monitoring cash uses and levels means keeping a running score on daily cash flows.
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