Cash flow management is the process of monitoring, analyzing, and adjusting a business's cash flows according to Ward.
Cash flow is very important because poor cash flow management is a main cause for Small and Medium Enterprise (SME) failure. Therefore, cash flow management could determine a business's success or failure.
It would be hard to conduct a study on cash flow management without mentioning working capital because they are interrelated. A poor cash flow directly affects the working capital (or liquidity) of an SME.
Working capital can be defined as the capital available for conducting the day-to-day operations of an organization, represented by its net current asset, that is, short-term net assets (stock, debtors, and cash) less short-term creditors. According to Barrow, working capital as the difference between current assets and current liabilities and is very often referred to as liquidity.
No business would survive without cash. Cash management involves avoiding extended large discrepancies between cash inflows and cash outflows because prolonged cash shortages can lead to insolvency.
An approach for cash flow management involves the use of cash flow analysis on a regular basis as well as using cash flow forecast to head off cash flow problems. ACCA stressed that “Cash flow is the lifeblood of the thriving business. Effective and efficient management of the working capital investment is essential to maintaining control of the business cash flow.” Barrow also emphasizes on the importance of proper cash flow management by mentioning that if an SME cannot find cash to meet the day-to-day bills, then it becomes "illiquid" and very often goes bust.
Therefore, cash flow management also involves working capital management and cash management.