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Cash Management

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Cash Management

Abstract
The following paper will define cash management and discuss why it is especially critical in the healthcare industry.

It is said that cash is the livelihood of any business operation. Any business that has control of the access to cash and generation of cash is most likely to endure and prosper. “Cash management is probably more important in the healthcare industry than in many other industries” (Cleverley, Song & Cleverley). Cash management is defined as” processes and techniques focused on the acceleration of receivables and the cash conversion cycle. Reduction of the cash conversion cycle, along with the related investment of surplus funds, should be a critical objective of financial managers” (Cleverley, Song & Cleverley). Good cash management is the key to a successful business.
Cash management is especially crucial in the health care industry for several reasons. Large sums of investment eligible funds pertain to hospitals and other healthcare firms. Hospitals and other healthcare firms experience larger investment management needs than other industries for the following reasons: * Many healthcare firms are voluntary, not-for-profit firms and must set aside funds for replacement of plants and equipment. * Healthcare firms are increasingly beginning to self-insure all or a portion of their professional liability risk. * Many healthcare firms receive gifts and endowments. Although these sums may not be large for individual firms, they can provide additional sources of investment. * Many healthcare firms also have sizable funding requirements for defined-benefit pension plans and debt service requirements associated with the issuance of bonds. (Cleverley, Song & Cleverley).
Cash management is tied together with the cash conversion cycle. This cycle “represents the time it takes a firm to go from an...

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