Accelerating cash flow Featured

7:00pm EDT January 31, 2007

Once a company has earned its money, there is nothing better than getting it in-house, fast. Accelerated cash flow features are offered by commercial banks to help their customers manage and improve the efficiency of their cash-flow process.

“One of the newest services is the result of the Check Clearing for the 21st Century Act, commonly known as Check 21,” says Maureen Murman, vice president of treasury management services for FirstMerit Bank in Cleveland. That law went into effect in October 2004. Smart Business asked Murman more about Check 21 and the processes that help accelerate collections and make depositing funds more convenient.

Briefly review the Check 21 law and what it allows businesses to do.

The Check 21 legislation mandated that banks, businesses and consumers must accept substitute checks as if they were the original check. No organization may opt out. This makes it possible for banks to exchange checks electronically across the full spectrum of check processing and therefore offer customers new services, such as remote deposit.

How do remote deposits work?

A business uses a specialized desktop scanner and software provided by the bank to turn paper checks into electronic images and send the images to the bank with an electronic deposit ticket. The business does not have to send someone to the bank, so it saves time and broadens the banking opportunities beyond the geographically convenient area.

How about other services for getting money into a business account faster?

Traditional bank services that speed up business cash flow include lockbox, sweep accounts and Automated Clearing House (ACH) collections.

Let’s start with ACH first. How does that work?

Automated Clearing House is the term for electronic transactions, the most widely known of which is direct deposit. A nationwide network of financial institutions is linked by this process. A business can initiate an ACH transaction as a charge to its customer’s checking account to collect payments. This has been used for many years by utilities and insurance companies but is now frequently used by clubs, schools, religious groups, service providers ... any organization that is paid on a repeated basis.

ACH transactions can also be initiated online and are an inexpensive option for a business to build into its Web site for online consumer bill pay.

Tell us a bit about the automated sweep programs for paying down loans.

An automated line of credit sweep uses funds to pay down a line as soon as deposited checks are collected. It automatically draws on a line as incoming checks clear at the bank. This minimizes a company’s borrowing. The company does not borrow when it writes checks but when the checks actually get to the bank, which is usually several days later. Sometimes deposits have been made in the meantime, eliminating the need to borrow altogether.

In the nonelectronic area, what about lockbox services?

A lockbox is a post office box from which the bank collects mail on a daily basis, makes the deposit and gives the customer information regarding what was received. The mail tends to get to the bank faster with a lockbox because of the postal system and the consistency of the bank pickup and processing. With electronic banking, images of the checks and any other information received in the lock-box may be seen at the customer’s office the same day the deposit is made. Bank archiving systems also provide very efficient storage and later research of payments, too.

What is a typical fee range for all of these services?

Fees vary widely, based on the services used and the volume of activity within the services. Because these types of services speed up cash flow and improve efficiency, they often pay for themselves either by reducing borrowing costs or allowing staff to use their time more productively.

Who should a business owner talk to about these issues?

The owner should talk to his or her bank relationship manager or treasury management representative about how he or she can take advantage of bank services to improve cash flow. Lacking those contacts, the owner can ask the branch manager for an introduction to the business banking team.

MAUREEN MURMAN is vice president of treasury management services for FirstMerit Bank. Reach her at (216) 694-5637 or maureen.murman@firstmerit.com.