Central cash management refers to the practice of dealing with all financial transactions from a single location, rather than leaving financial transactions in the hands of individual locations. For example, your company might choose to run all financial transactions from the main office in Seattle, rather than allowing satellite offices across the country to handle finances individually. While central cash management provides some advantages, such as improved financial oversight, it creates disadvantages as well.
Software Incompatibility During Expansions
Although software companies have taken steps to improve the complications that arise when different programs try to talk to each other, interoperability problems still plague businesses. This issue often proves especially problematic during mergers. If your company acquires another business that runs different accounting or bookkeeping software, implementing centralized cash management at the business often means a complete overhaul of the other business’s financial IT infrastructure. Such overhauls require time, labor and costs.
Increased Impact of Software Glitches
Assuming that nothing goes wrong with your cash management system, employees should receive their pay like clockwork. Few computer systems and software packages remain problem-free over their lifetime. Software updates and even faulty firmware can crash programs, eat data and freeze systems. In addition, user error in managing or manipulating the cash management software or even the data can delay payments to every employee and all your vendors. Distributed and paper-based cash management also suffers from user error problems, but it limits the problem to a smaller group or single facility, rather than your entire organization.
Adjustments for Multiple Time Zones
Central cash management creates the potential for timing problems if your business works in multiple time zones or internationally. Assuming your business pays all employees on the same date, your system must account for when banks stop processing transactions across all the relevant time zones, and accommodate the payment times for employees working across the international date line. Rather than sending one mass payment, as you would if all employees lived locally, your business must manage multiple mass payments across a span of hours.
Many small businesses use central cash management by default because the business has only a single location. If you decide to expand but not to implement central cash management at the time, you can position your business for a future change by installing identical software at all your locations. That eliminates the interoperability problem before it starts and means you can import data at will from any of your business locations. Maintaining a distributed cash management system complicates the work of your financial officers, since they must collect and assess financial information from all the sources to determine the financial standing of your business.
- Institute of Finance & Management: Five Steps to Improve Cash Management Control
- TechRepublic: 10 Ways for IT to Survive a Merger
- Software QA and Testing Resource Center: Software QA and Testing Frequently-Asked-Questions, Part 1
- Computerworld: Update – Seagate Offers Free Data Recovery for Faulty Drives, New Firmware
- Square Mile Consulting: Cash Management for Asset Managers
- Treasury Management International: Moving From Fragmented to Centralized Cash Management