The Check 21 Act, passed in 2003, had a dramatic impact on businesses’ cash flow by allowing banks to send digital versions of checks — eliminating the need for physical copies. Similarly, important developments are on the horizon to further enhance payment capabilities, says Tom Hoffman, senior vice president and manager of the Treasury Management Services Division at Bridge Bank.
“We’re seeing a lot of start-up technology companies focused on creating better ways to process payments, and adapters to allow accounting systems to interact with bank services,” Hoffman says.
Smart Business spoke to Hoffman about methods to help manage cash flow and services that may be available in the future.
How can a business tell what treasury management services might be needed?
A good banking partner should conduct initial assessments when clients start working with the bank, and also meet with clients on a regular basis to review needs.
For example, a growing business wanted to see if any changes could impact its treasury management needs. It had acquired a health insurance business in Southern California that processes COBRA payments, and payments were being mailed to central accounting at the company’s headquarters in Northern California. That’s a slow process. The business was able to set up a remote deposit capture (RDC) scanner to process checks electronically. There also are fields in the RDC platform for record keeping — for a payment of $100, the insurance company is paid $95 and $5 is kept for processing. Deposits are now made immediately, which speeds up cash flow and improves the flow of transaction data to the accounting system.
It’s a good idea to meet with your bank’s treasury management adviser at least annually to review your account. Look over the fees you’re paying, determine whether the services are worth the cost and see if there are other services you could be using.
Do businesses often pay for services that aren’t utilized?
It happens all of the time. There might be a base charge for Automated Clearing House (ACH) service and no activity. Maybe the business thought it was necessary, not realizing that if you’re not the party originating the ACH transaction, you don’t need the service. That can be confusing to many people. One of the benefits of treasury management consultation is that your bank should catch these oversights and alert you to save your business money.
How can business owners benefit from new solutions on the horizon?
Many start-up technology companies are working on adapters to create better ways to use existing payment rails such as the check clearing system, ACH, ATMs, and debit and credit cards. If you’re overseas, you can use your ATM card at a bank in London; so, why can’t you send a payment to an international vendor through this network and have an immediate settlement?
Technically, it can be done, but there are a lot of issues — international transfers are done through the Office of Foreign Assets Control. However with such efficiency, those things will be addressed. It can take two to four days to send a wire transfer internationally. It would be attractive to deliver a system to settle that immediately.
In terms of treasury management, the next step is to integrate enterprise resource planning systems with banking services. That’s already happening at Fortune 500 companies. The future is finding technology to create adapters that will connect the company’s banking services with its accounting platform. Businesses will be able to evaluate cash needs and reconcile the accounting system on a daily basis, rather than waiting for paper statements. It’s just a matter of creating an interface with whatever accounting software is being used.
One start-up company has a platform to upload accounts payable — all of the invoices a business receives — so payments can be reviewed and approved via tablet. CFOs want the ability to see every invoice and approve payment, even when traveling.
We’re going to see a lot of innovation. It might not be as dynamic as a new payment system, just modifying the ways existing systems are used to make cash flow more streamlined and free up working capital. Check 21 was a good example of that, and the efficiency, economic and environmental gains were tremendous. ●
Insights Banking & Finance is brought to you by Bridge Bank