Manage your money

In this day and age, almost every company is aware of treasury management. But, if you’re not, you need to learn about it, as it provides a litany of products and services that are important to day-to-day operations.

Treasury management is for all companies — both large and small — that need their revenues to be deposited in a safe, efficient and effective manner. Part of it is monitoring checks, deposits and other daily cash flow needs, while another part includes more advanced services such as remittance processing, cash disbursements, online banking services, electronic funds transfer, overnight sweep investment options, remote deposit capture and positive pay.

“Treasury management services are important to a company when it wants to protect against fraud, especially when it has excess funds in its operating accounts,” says Clyde Hooker, a vice president with Wells Fargo Bank, N.A. “The excess funds can be invested overnight, which pays dividends, or used to offset fees for services like fraud protection. It allows the owner or key individuals services at their finger tips that would normally happen at a branch.”

Smart Business spoke to Hooker about why treasury management is so vital and how it can benefit any organization.

What exactly is treasury management?

The main objective of treasury management is to accelerate cash flow, control disbursements, report information and offer investment options for excess capital. A good treasury management program offers a one-stop service, where companies can do Internet banking, ACH, lockbox and wire transfers, all with a single point of contact to help the company handle its cash flow and finances.

Treasury management services provide resources to improve cash flow, slow down the payment process and optimize cash by making last-minute investment and/or lending decisions. Online resources save key individuals time by authorizing users to access the balances and transaction details over the Internet, process deposits from their offices without having to deliver to the branch for processing, and initiate wires and still keep internal controls.

Additional services that may not be big time savers, but do provide fraud protection or automation of certain processes, include positive pay, which provides check fraud protection; ACH fraud filtering for protection against electronic fraud; and ACH origination to provide direct deposit or direct collections.

If I’m the CEO of a company, why should I care about treasury management?

The CEO or owner has a direct responsibility to make the company profitable. Improving cash flow and controls will contribute toward the bottom line. Treasury management offers a variety of services to increase efficiencies and add control. For example, services like a lockbox, where the bank collects the companies’ payments and they go right into their accounts, provide centralization of collections of all deposits. It provides faster collection times, plus a business continuity plan for disaster situations. Payments will continue to be deposited into the account regardless of whether the employees are in the office or relocated to a remote location. Implementing dual control of payment on wires or ACH originated items provides the internal control to prevent internal or external fraud. The designated administrator grants authorization to the other users, including viewing rights to an outside CPA or whoever may need the access.

What problems or issues can arise from treasury management?

Typically, treasury management services prevent problems or issues within a company, unless all access is assigned to one individual and he or she has full control of the information and transaction initiation. Treasury management professionals strongly recommend a separation of duties to reduce the risk for fraud. The earnings credit rate is what is used to waive fees and is generally based on a rate that is tied to the 90-day T-Bill, although some customers may have negotiated rates. Right now, larger compensating balances are required to offset fees, since the rate is down due to economic conditions. The services can be changed or turned off and back on at any time.

What are the consequences a company faces if it doesn’t monitor and/or contain this?

The company may risk loss of income or overpayment of expenses by not utilizing treasury management services. Treasury management allows companies to maximize their excess funds by investing or paying down outstanding debt. Treasury management also provides fraud prevention tools to protect the company from potential losses. Check and ACH fraud is a growing problem in the banking industry. The convenience of the Internet has made it easier than ever to commit fraud. Buying check stock at any office supply store, printing the company logo and reproducing checks can be easily done on any home computer. ACH fraud has also become easier. Electronic bill pay and electronic debit has made it easy for a criminal to provide a stolen account number to a company for payment.

Without treasury management, fraud losses may occur. If the company has excess funds and a line of credit it can first go to pay down its line of credit, waive the services fees and then the remaining funds could be invested overnight to pay dividends. Internally, a company should ensure protective measures are in place. These would include practices like dual signing of checks, separation of duties, daily review of checking accounts activity, keeping check stock locked and use of checks with built-in security features.

Information and views provided in this article are general in nature for your consideration and are not legal, tax or investment advice. Please contact your own legal, tax or financial advisers regarding your specific business needs before taking any action based upon this information.

Clyde Hooker is a vice president with Wells Fargo Bank, N.A. Reach him at (281) 315-8996 or [email protected].