Increasing the flow Featured

7:00pm EDT December 26, 2008

Any time there is a challenging economic environment, cash flow becomes more critical than ever. A closer eye must be kept on all aspects of the flow of funds in a business. It is obvious that a company must watch accounts receivable closely during a difficult economic cycle. It is also important to monitor the financial health of suppliers to ensure that they continue to be capable of providing needed supplies.

This added work might be cumbersome, especially since many offices today are run with a lean staff. To accomplish everything with minimal staff, you have to be efficient.

“Treasury management services enhance efficiency, helping employees work quickly, without sacrificing quality,” says Lori Wood, public funds relationship manager with FirstMerit Bank.

Smart Business spoke with Wood about treasury management services and how they can be used to improve cash flow and enhance overall business.

How are treasury management services used to improve cash flow for businesses?

Treasury management services are used to help companies collect and move funds more efficiently, such as automatically transferring funds between checking accounts, lines of credit and/or investments to minimize interest expense or to increase interest income. There are also online services that help companies manage cash flow and gather up-to-date information so they can make educated business decisions.

A service most businesses benefit from is lockbox. With a lockbox, the bank provides a business with a P.O. Box address for customers to send payments to. The bank picks up the mail and deposits the checks to the business’s account, notifying the company that payment was received. This notification via the Internet is timely and includes images of the checks deposited. Deposits are made daily as checks are received.

A lockbox is a big time saver because employees do not have to perform all the tasks involved in mail opening and deposit preparation or take time to go to the bank. By relieving employees of clerical tasks, the company allows them to focus their time on specific tasks, such as collections or sales.

How have new technologies enhanced treasury management services?

Online banking allows a company to know immediately of any transactions posting to their account. Since many transactions are electronic now, it is important for business owners to have the most up-to-date information at their fingertips. Daily access to account information also helps companies resolve any issues quickly, again increasing efficiency. Online banking can include many different services. At a minimum, it provides access to view accounts online. Other services may include wire transfers, direct deposit, account transfer, positive pay, etc.

Current technology allows businesses to send images of checks through the Internet for deposit so employees don’t have to travel to the bank. Remote deposit service usually provides more time for deposits to be completed than typical branch banking hours.

Of course, technology has not completely eliminated human interaction, service or guidance. Bankers are still available to help companies decide which services are best for them and evaluate financing and investment options. Treasury services simply enhance the banking relationship and make the cash management process more efficient.

Why is it important to improve cash flow?

Given the economy, collections become more important to businesses. It is important for businesses to stay on top of customers and partners to ensure they do not fall behind in payments. In a tough economy if you don’t have enough incoming funds, you will not survive. Treasury services should be used to enhance the overall collection, processing and documentation processes.

The smooth movement of money is crucial for a business to be profitable and sustainable. Timely processing of payments and collections facilitated by appropriate bank services keeps the cash flowing between business partners. Treasury management services make this flow more efficient.

Why are these services worth the financial investment?

Most of these services will have some cost. The key is to evaluate the cost of the service versus the cost of handling the processes in-house. Is using employees to perform clerical tasks the best use of limited human capital or could employee time be used on tasks that are more beneficial to the business?

A business owner who is hesitant of the additional expense might compare this situation to the view held by many people regarding cell phones only a few years ago. Some were reluctant to invest in cell phones initially. It wasn’t long before most people realized the cost of a cell phone was minimal when compared to the value of the work that could be done with it. The same can be said for treasury services. With these services, more work can be done with less staff in less time.

Treasury management services have been prevalent in large companies for many years. Today, all businesses can benefit from and afford some level of these services. Internet access has decreased the need for sophisticated software to utilize the services, thus decreasing the cost of implementing a corporate cash management program.

LORI WOOD is a public funds relationship manager and part of the treasury management team with FirstMerit Bank. Reach her at (614) 545-2787 or lauren.wood@firstmerit.com.