How cash flow forecasting brings greater business success

When pressed to single out the most important touchstones for any business, many entrepreneurs cite customer experience, profitability and competitive pricing. Cash flow, however, should be at the top of that list as none of those other activities are possible without positive cash flow.

As anyone with a profitable bottom line knows, profits don’t equal cash flow. Cash is required to keep business operations running, making cash flow forecasting central to understanding your operating cycle. With effective forecasting, you can better manage cash inflows and outflows.

Smart Business spoke with Douglas V. Wyatt, executive vice president, senior commercial banker at Fifth Third Bank, to learn more about cash flow forecasting and its role in business operations.

What is the key to maintaining positive cash flow?

The key to maintaining positive cash flow is predictability, which requires situational awareness of your operating cycle. That can be achieved through cash flow forecasting.

While there are certainly complex and costly models for cash flow forecasting, a spreadsheet is a tried and true method. The process begins by entering your cash on hand, reviewing your receivables aging for past due invoices, then, based on recent payment history, you can estimate when you will be able to collect the funds owed to you. This analysis will allow you to see how many customers pay on a timely basis and how many are paying beyond the set terms.

How might quality issues impact cash flow?

There is a link between operations quality and finance. Some businesses grow so rapidly that delivery processes begin to lag. This can result in a poor customer experience, which in turn creates a negative cash flow situation if customers begin withholding payments because of degradation in the quality of service. Examine your processes to understand if there have been changes that impact quality that could influence your customers’ desire to pay on time.

Some businesses can be too flexible when it comes to billing. This can lead to invoices or final bills that don’t match the quote or purchase order (PO). When a customer requests a format change to your invoice, this can create a problem for the person whose job it is to match the quote or PO with the invoice. As result, they can’t easily make the connections, which in turn can cause a delay in payment and negatively impact the customer experience. To avoid this scenario, talk with customers to better understand their needs and clear up any related issues.

Why is it important to develop a disbursement strategy?

Putting in place an effective disbursement strategy to pay vendors is critical. Use of a PO system can help control expenses before the purchase takes place. POs allow you to set parameters indicating what products or services someone can buy and how much they can spend without additional approval. POs can also help a business stay on top of cash outflows and show when expenses will hit the books.

Payments via an electronic payables solution or a purchasing card program are also highly effective ways to manage the timing of cash outflows. Using such payment methods, you can schedule payments and achieve greater predictability into when funds leave the organization.

How can situational awareness be achieved?

When forecasting cash outflows, it’s important to look at when the cash flows out as opposed to the total amount of the invoice. Start the cash forecasting with your cash on hand, then add the realistic expectation of when cash will be received. Subtract the cash expenditures and the resulting number is the net cash available for the next period.

Don’t be discouraged if the numbers aren’t positive at first. It will take time to develop true situational awareness. But once accuracy is achieved, you will gain deeper insight into your operating cycle, which will have a dramatic impact on your business.

Fifth Third Bank. Member FDIC.


Insights Banking & Finance is brought to you by Fifth Third Bank

Is it time to integrate your multibank model for the cross-border challenge?

Local banks are often the smart choice for younger businesses, but taking the time to re-evaluate the benefits of a more consolidated banking structure can be overlooked as businesses mature. In particular, companies that do business overseas and work within a decentralized, multibank model can have very little insight into their overseas treasury operations.

Smart Business spoke with Chase Commercial Banking’s John Hayes about whether or not a centralized model might be right for your business.

How did the decentralized model become prevalent, and what are the challenges?

As U.S. businesses expanded overseas, many leveraged multiple in-country correspondent banks for their treasury management. This provided access to on-the-ground experts for advice on best practices, regulatory/tax environment, supply chain and trade.

While this fragmented approach seemed viable at first, many organizations realized the inefficiencies and challenges, such as:

  • Multiple relationship managers that cover each bank/region, adding to costs and time spent maintaining each relationship.
  • Lack of visibility and control into international accounts, resulting in inadequate real-time insight.
  • Multiple technology platforms and systems, which can make it difficult to manage access and control.
  • Lack of risk management, which can increase the threat of fraudulent activity.
  • Customer service models that vary from bank to bank, making it difficult to address and resolve inquiries.
  • Inconsistent pricing.
  • Decentralized accounts payable/receivable and foreign exchange management.
  • Counterparty risk.

Is a decentralized model still viable? What has changed in the past decade?

The decentralized model gave many organizations the ability to conduct business on a global scale. In the past decade, however, technology advancements have allowed for a more centralized approach to global cash management. The various proprietary banking platforms and treasury management systems provide a single platform for all banking and cash management, offering clients more visibility and control.

This centralized model also increases liquidity and efficient management of funds; accurately forecasts budget projections; consolidates documentation in a complex regulatory environment; and provides more consistent cash management.

In some instances, organizations may still require local bank accounts in various locations for regulatory and/or tax purposes.

How can an integrated banking model push a business forward?

Many international banks have invested in developing dedicated, local banking groups with decision-making capabilities and on-the-ground knowledge of the region’s consumer and logistical landscape. This model has resulted in better client communication and automation to manage multiple accounts in multiple currencies.

Integrated international banking models operate on a single platform, which immediately reduces duplication and allows for better control and more consistent processes. Over time, companies may also realize cost savings by consolidating transactions and leveraging relationships with their vendors (including financial partners) to reduce transaction volume and, in turn, the fees associated with those transactions. Additionally, there’s the advantage of access to real-time reporting and increased visibility into accounts and statements.

For example, one U.S. based client operated in 24 countries with more than 80 bank accounts and more than 15 providers. By moving to a centralized treasury structure, it cut that down to 34 bank accounts with four banking providers, saving more than $50,000 annually.

As global financial institutions improve their international services, including developing more sophisticated technology to serve cross-border clients, the gap between international and local banks delivering local expertise has closed.


Case study: Migrating from a decentralized to a centralized treasury structure



Chase is a marketing name for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”). The products and services described in this article may be offered by JPMC subject to applicable laws and regulations and service terms. Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by JPMC.


Insights Banking & Finance is brought to you by Chase

Weighing the available options for business succession planning

It’s never too early to start thinking about your ownership-transition strategy, regardless of where your business is in its life cycle.

Smart Business spoke with Dave Schaich, president of Western Pennsylvania Middle Market at Chase Commercial Banking, who provided an overview of some of the choices, in order to help you consider all the options you can pursue.

If you’re a business owner at the outset of succession planning, where’s a good place to begin?

Start by laying out all the options available to you, and make a list of the pros and cons for each. This will give you a more complete picture and should help you to align the needs of your organization with the future you envision.

What’s one option for sellers to consider?

If you don’t necessarily want to stay involved after the sale, consider selling to a third-party strategic buyer. One advantage is that sellers can leverage a control premium — this is the amount a buyer is willing to pay above the current market price of a company, usually because the buyer wants to acquire a controlling share or make changes to the cost structure.

Another consideration is maximum up-front liquidity. Strategic buyers tend to be more familiar with the business model and can more easily integrate the acquired business into their existing platform, resulting in greater sale proceeds at close.

What if the owners want to stay involved with the company after the sale? Are there some options for these sellers?

It’s fairly common, and there are a lot of options for sellers in this situation — employee stock ownership plans (ESOPs), leveraged recapitalizations or selling to a financial acquirer, to name a few.

Financial acquirers are a good option for an owner who not only wants to be involved after the sale, but also wants to continue operating the business.

Some financial buyers are looking for companies with shareholders who are active in management and want to supplement, rather than replace, the team. If you’re ready to diversify your personal balance sheet, but not yet ready to give up your place at the helm, this might be a good option.

You mentioned ESOPs. Who might find this option attractive?

Generally, after leveraging its assets to purchase shares, the company conducting the ESOP sells 25 to 100 percent of the company to its employees. This allows the owners, in effect, to sell the company to itself. This creates a lot of equity incentive — with an ESOP, all participating employees have an incentive to ensure that operations run well and the company is successful because they’re now financial stakeholders. It’s also a great tool for recruiting and retaining great employees.

Another thing to consider is tax deductions — company contributions to ESOPs are generally tax-deductible and may qualify for capital gains tax deferrals and other tax benefits to the redeeming shareholder, all of which lead to increased cash flow.

What else should be taken into account?

Owners with available time and capital might consider utilizing initial public offerings (IPOs) to shift the business from being privately held to being a public company where securities are exchanged publicly.

There are a lot of new responsibilities and compliance issues the business will face, but the big advantage is that there’s increased liquidity for shareholders. Any pre-IPO investors in the company will have the opportunity to monetize their investments as their shares take on cash value, which can be a strong exit strategy for business owners. There’s also increased growth capital. Companies undergoing an IPO receive a direct boost to liquidity and can be used as expansion capital.

Ultimately, however, every business has unique needs, and every owner wants a unique result out of succession planning. The key is to get all of your stakeholders together, and create a plan that makes the most sense for you and for your business.

Insights Banking & Finance is brought to you by Chase

How to recognize when it’s time for a new bank

If asked why they left their bank, business owners typically cite issues with fees or high interest rates.

“That’s where dialogue may begin with a business owner. But when you drill down, what’s at the crux of the matter is a lack of attention, communication and follow up,” says Jack Frencho, Wealth Management Advisor at The Private Client Reserve of U.S. Bank. “They feel as if they’re taken for granted and the bank no longer values the relationship.”

Smart Business spoke with Frencho about how knowing when it’s time for a new bank.

How would business owners know when they’re no longer getting the best service from their current bank?

Generally, business owners learn they may not be getting the most out of their bank after having a discussion with another business owner about the deal terms, rates or services that differ between them.

Otherwise, concern arises when business owners discover their bank officer is no longer proactive — there is no follow-up on requests, it takes several days or weeks to get a response. That will generally drive clients to scrutinize their fees.

Many times the perception business owners have of their bank is more qualitative than quantitative. They feel there are no more new ideas or solutions being presented to them by their banker that would help their business.

What must business owners do once they decide to switch banks?

Business owners should gather copies of all existing loan documents, statements and contracts that disclose the terms, fees and penalties of those arrangements before meeting with a new institution. Also have available statements outlining operating account, treasury management, payment solutions or credit card transactions. This allows for direct comparisons to any new offer, potential terms and structure of a relationship with the new bank.

Those who utilize a lockbox or similar service should be prepared with an analysis statement that will show an itemization of any transactions within that product.

What is the timeline for making a switch?

The time it takes to make the switch from one bank to the next varies. Generally, the process to switch without a lockbox would take 45 to 60 days.

Lockbox account services take more time to transfer because vendors need to be contacted and a new lockbox must be opened, so it’s advisable to keep the old one open for four to six months after the new lockbox is up and running.

The new bank should do most or all of the heavy lifting when it comes to the logistics of transferring accounts.

How can the business owner make a change without setbacks?

Many loans are fixed rate, which generally speaking, have a prepayment penalty clause built in. The new deal terms should offset some or all of the prepayment penalty. If the costs of moving the loan are substantial, the business owner may need to move all but that credit relationship to the new bank to mitigate the prepayment penalties.

Variable rate loans are not subject to a prepayment penalty, which should make the decision to move easier.

How can a business owner ensure the new banking relationship remains strong?

Going into the new relationship, set mutual expectations upfront, such as the level and frequency of conversation, service standards, and email and phone call response times.

It comes down to managing expectations around problem resolution. It’s advisable to meet no less than annually, preferable biannually, to go through a thorough relationship review.

Regular communication is central to a good banking relationship. A bank should make sure the business owner understands the particulars of the deal terms and the structure of credit facilities in place. That structure exists for certain reasons. A collateral shortfall, for instance, will necessitate specific rates or covenants. Your banker will help you understand why you’re getting a specific deal.

The relationship with one’s bank can and should be healthy, built on mutual trust and open and honest communication. If those elements aren’t present in the current relationship, it’s time to look elsewhere.

Insights Banking & Finance is brought to you by U.S. Bank

How to get the most out of your local banking relationship

Misconceptions about banks still linger for businesses, even though it’s been easier to obtain financing in recent years. Some incorrectly assume that banks only lend money during good times when companies least likely need it, or that during the economic downturn regulators prohibited banks from lending money. Still others erroneously believe that their business is too small for conventional bank financing.

“But we think there are easy ways around these views if you’re working with banks — and there are lots of good community banks in Cleveland — that take the long view with customers, and help companies through both ups and downs in the economy,” says Tom Fraser, president and CEO of First Federal Lakewood.

Smart Business spoke with Fraser about how to get the most from your bank with a consistent, predictable relationship for both good and bad times.

What should a business owner look for when choosing a bank?

When selecting a banking partner for your business, first investigate the institution’s history of financial performance and stability. If that is strong, it indicates that its risk appetite will remain steady and it has the potential to be a consistent partner.

Additional criteria to examine are the bank’s suite of services, the depth of its expertise and the markets that it serves. It’s important to know if a bank has a track record of interacting with businesses in your market segment, and if the banker and team who will own your account have experience applicable to your business requirements. More specifically, delve into whether or not they have an aptitude to understand your business and to anticipate your needs as they evolve over time.

Should a business interview their banker?

It’s fair to ask your banker some questions. For instance, find out what other small and middle market companies the bank has dealt with and what solutions those have brought to bear on the market. You might also consider asking how the bank’s risk appetite has changed since the economic downturn. Think of your bank as your company’s largest vendor. You want to know your critical suppliers are reliable and available.

Also, as a CEO or CFO, you should know the bank’s president and chief lender. Your financial future should be entrusted to someone you know and trust, rather than an anonymous committee or policy.

What’s the biggest benefit to banking locally?

Beyond quick access to decision-makers, there are several reasons to bank locally. First and foremost, when business owners and consumers make deposits with a locally owned or headquartered bank, those funds are reinvested locally. This concept of mutuality creates a healthy business climate and contributes to a vibrant community. Teaming with a community bank is also beneficial because of its depth of relationships with other area professionals.

How else can business owners get more out of a banking relationship?

Like any successful relationship, the key is to invest time getting to know each other. A financial partner is a critical player in a company’s success, so it is vital that the bank and business know what each other’s priorities are as well as how each party operates internally and goes to market. In order to achieve that, open communication at every level is critical, including branch staff, members of the bank’s treasury team, and operations and support personnel.

Your banker should act as a trusted adviser. For example, bankers have experience with cash flow cycles and expansion opportunities, so they can readily help with early advisory initiatives for financing — and they don’t charge hourly like CPAs and attorneys. It’s also often more economical to work consistently with your primary bank because you’re already sharing information.

How often should you look around at the offerings and benefits of other banks?

It goes without saying if there’s a problem you need to explore new options. More proactively, if there’s a major intersection in your company’s trajectory on the horizon, such as a new building purchase, an acquisition of new equipment, an acquisition of another company, etc., that might be a great time to make certain that you are in the best possible relationship to meet your upcoming needs. A good banker will never mind being put to the test.

Insights Banking & Finance is brought to you by First Federal Lakewood

Economic outlook: 2015 will likely bring jobs and clarity to Pennsylvania with steady growth

The Keystone State’s economy is poised to enjoy strong growth in 2015.

“The fundamentals show a strong foundation for growth that will begin accelerating over the coming year,” says Jim Glassman, head economist at Chase Commercial Banking.

Smart Business spoke with Glassman about Pennsylvania’s economic health and what the future will bring.

What do current indicators tell us about the Keystone State?

Recent economic data indicates steadily improving conditions for growth. Long-term gross domestic product (GDP) growth trends show momentum in Pennsylvania’s economy, with the state finally regaining its prerecession growth trajectory. Though recovering economic ground lost during the recession will take years, the state’s economy currently holds potential for expansion.

Regional business leaders are gaining confidence. The Federal Reserve Bank of Philadelphia’s Survey of Business Conditions reveals that the majority of businesses are experiencing an uptick in current activity, and expectations are widespread that favorable conditions will continue into 2015.

Rising home prices and the gradual restart of construction activity shows a strengthening real estate sector. Compared to the national average, Pennsylvania’s housing market avoided the bubble’s worst excesses, and homes held their value relatively well throughout the crisis. In 2010, the average Pennsylvania home was worth 10 percent more than the national average — but that disproportion has vanished in recent years, as the national market recovered. Housing prices have now fallen in line with national averages, indicating a stable market. In 2015, the state’s real estate and construction sectors should finally join the nationwide housing revival.

Following years of below-average growth, Pennsylvania’s labor market finally saw steady gains in 2014. The state’s official unemployment rate has fallen below 6 percent and is expected to continue to decline modestly in the coming year.

What does declining economic distress mean for Pennsylvania?

Although Pennsylvania experienced a milder recession than many states, the downturn still caused turmoil in the local economy. Key indicators of economic distress —personal bankruptcies and layoffs — soared during the recession. Today, signs of distress have returned to prerecession levels.

The housing crisis generated a wave of foreclosures and personal bankruptcy filings, but foreclosures have finally subsided. Personal and business bankruptcy rates have been falling steadily since 2010, and filings are currently at their lowest level since 2007.

Weekly reports of first-time jobless claims provide insight into the current business climate. Layoffs have fallen considerably below prerecession levels, and the economy is letting go of few jobs — a sign that businesses are retaining workers.

Which industries are driving the recovery?

The energy sector continues to be a bright spot. The pace of oil and gas exploration remains far below its 2012 peak, but the steep falloff of recent years appears to have stabilized; by historic standards, new drilling activity in Pennsylvania remains high. Meanwhile, wells drilled during the state’s boom years are yielding cheap natural gas and plentiful petrochemical feedstocks for Pennsylvania’s industries.

The state’s economy is also poised to benefit from growth in the service and health care sectors. Pennsylvania’s service-oriented workforce contributes to greater economic stability than the national average, and the relatively large footprint of the state’s health care industry also contributes to lower economic volatility.

How much will Pennsylvania grow in 2015?

Pennsylvania’s economy is building on a strong foundation, and the state has considerable potential for growth. Pennsylvania’s GDP is projected to post 2 percent growth in 2014, and the economy should continue to accelerate through next year, with the pace of expansion reaching 2.9 percent. Forecasts anticipate a steady 2.8 percent annual growth rate through 2017.

The economic outlook appears clear: In 2015, the state’s economy should broadly align with the national trends of falling unemployment rates and accelerating GDP growth.

Insights Banking & Finance is brought to you by Chase

Banks with specialized experience offer clients a wealth of knowledge

The idea of specialization in financing is not too different than specialization in, say, the medical field — turning to a medical specialist who has experience treating a particular injury or illness versus seeing a general physician. In each case working with someone whose concentration is highly specified can be of great benefit.

John Hart, a senior vice president and Ohio market manager at U.S. Bank Commercial Real Estate, says there is good commercial real estate activity in the region, and expects the pipeline of projects will remain strong into 2015.

In an environment of steady activity, it’s important that businesses find the right banking partner to help them see projects through to completion. But many businesses get hung up on deal terms, forgoing a partnership for better rates.

“Banking specialists, because of their experience in a particular industry, are better able to keep borrowers apprised of trends, upcoming regulatory issues, changes in capital structures, etc.,” says Hart.

“There’s much more to consider when seeking a commercial loan than just the terms of the deal.”

Smart Business spoke with Hart about industry specific lending and how it plays out over the life of a business/bank partnership.

Why should a business be concerned with anything but deal terms when trying to secure a commercial real estate loan?

Surety of execution in a timely fashion is an important consideration for loan candidates — the ability of the bank to do what it promises and execute in a timely fashion.

There are many touch points during the course of a construction or development project. Banks with the right expertise can help guide clients through the process appropriately.

What services might be missed if the exchange becomes transactional?

When the loan process becomes completely transactional there’s little or no opportunity for a bank and a client to develop a full relationship. That’s important because a good banker can become a trusted adviser to a borrower. They have a chance, through the deal, to get to know a client’s business and its borrowing strategy, which allows banks to become better in tune with the situation and help borrowers achieve their goals.

If a banker and a client are just completing a transaction, that opportunity isn’t there. Borrowers then miss out on the chance to establish a relationship with their banks and receive additional advice from experienced advisers through the course of the project.

Some larger banks that have specialized services are able to bring other resources to the table based on the scale of the bank. Additionally, having a larger geographical footprint can be of benefit to some borrowers because banks of this size often have the scale to help with future development outside of a client’s home base.

What can banks that have a dedicated commercial real estate division offer that banks without one can’t?

Some banks that have a dedicated commercial real estate group are more likely to have industry and client-specific products and services. They have a better feel for the needs of, say, an apartment developer compared with someone who develops hospitality projects.

A specialized banker can bring in dedicated product partners who have specific experience to match the needs of that particular developer on a specific project.

How might working with a bank that has a dedicated commercial real estate division add value to real estate financing?

Someone who knows a borrower’s industry can be far more responsive to the clients needs and issues than more generalized lenders. Specialized bankers are set up to grow with the borrower’s business, handling many loans throughout the business’s life cycle, and are best equipped to deal with the increasing complexity of projects the borrower undertakes as his or her business increases its reach.

Working with a specialist at the outset of a project means having a partner along the way to help the borrower achieve exactly what he or she sets out to accomplish.

Insights Banking & Finance is brought to you by U.S. Bank

How to protect your business against modern fraud

The threat of cybercrime and Internet fraud looms large in 2014. With the expansion of global markets comes a rise in tech-savvy criminals who are poised to breach privacy and threaten organizations across the world.

“To protect not only their own information but their customers’ as well, companies must be more vigilant than ever against a wider range of fraud and scams,” says John L. Hayes IV, senior vice president of the Western Pennsylvania Middle Market, Chase Commercial Banking.

Smart Business spoke with Hayes about how you can protect your business.

What constitutes fraud?

The fast and easy definition is an intentional misrepresentation of facts with the intent to mislead. But it’s not always as black and white as a stolen identity, falsified financials or stolen data. If your business is negligent and fails to act on suspicious information or red flags — or simply fails to verify the information you’re provided — you could be complicit in another’s fraudulent actions.

What are some examples of fraud that impact businesses?

There are a number of fraudulent schemes your business might encounter, such as:

  • Check fraud. The most common fraud committed, it includes counterfeit, altered and forged checks. In an Association for Financial Professionals Fraud and Control Survey, 82 percent of respondents reported that checks were the primary target for business fraud attacks in 2013.
  • Payroll fraud. Payroll fraud occurs when an employee or vendor makes false compensation claims and attempts to collect more than they’re owed.
  • Internet fraud. Cases of Internet fraud grow every year as criminals get smarter and companies get lax about security. If your company’s data isn’t properly protected, hackers can break into your servers and steal private and confidential information about your company, employees, vendors and/or customers.
  • Phishing. Phishing attacks are carried out via fraudulent emails, instant messages or messages on social media sites that dupe targets into providing sensitive information or carry malicious software.

You can find an in-depth list on the FBI’s website (

How can businesses defend themselves?

The best safeguard is education and training. Businesses have a responsibility to implement internal control strategies, which range from requiring sophisticated fraud-prevention training programs to instituting reporting requirements and operating procedures when attacks occur. To protect your business from the financial loss, reputational risk and liability of a breach, utilize the following best practices.

Limit mobile device access. As businesses allow and encourage bring your own device policies, hackers have responded by designing malicious software that targets mobile devices, which are capable of leaking sensitive data. Experts estimate up to 10 percent of legitimate apps could potentially leak logins and passwords, nearly 25 percent may expose personally identifiable information and 40 percent communicate with third parties. If you have networks that access sensitive information be particularly wary of allowing employees to use unsecured systems and devices at work.

Combat phishing with social media awareness. Through the wealth of public information from social media profiles, such as names, job titles and birthdates, phishing scams have become extremely convincing. Fraudsters pose as a trusted client or friend, and employees can be deceived by the information mined through a few Internet searches. Educate your employees about the risks, train them on utilizing the privacy features of social networks and show them the hallmark signs of phishing attempts.

Use a Virtual Private Network (VPN). When employees work remotely, data travels from server to server on the Internet, becoming less secure with each jump. But within a VPN, encrypted information is transmitted directly from computer to computer, reducing the risk of sensitive data being harvested by infected servers.

Conduct regular audits. Aside from the fact that this may be a compliance requirement, there’s simply no better way to see what’s working and what’s not than to conduct consistent audits of internal and external security policies and processes.

Insights Banking & Finance is brought to you by Chase

Governments miss out on timesaving solutions by not opening up to banks

Federal, state and local governments have unique needs. Banks, in response, have dedicated a portion of their business to address them.

“There are many best practices that can be implemented if one understands the laws that affect government,” says Karen Bigelow, senior vice president and regional manager of the government banking division at U.S. Bank.

With open communication, banks can develop customized services that help government entities. Getting them to talk, however, can be difficult.

Smart Business spoke with Bigelow about some underutilized services banks can offer government entities.

What do government clients need?

The needs of government entities are vast and broad. They need support in collections, disbursements, investments and borrowing the cash necessary to support operations.

The challenge with serving government clients is they are often broken down into decentralized units with special responsibilities. That requires banks to learn about all of them in order to take a consultative approach and apply experts in certain business lines to help these entities solve problems.

The more a bank understands how a government entity operates, the easier it is to recommend appropriate solutions. It’s critical to have a strong relationship that allows the sharing of information so that banks are not recommending a one-size-fits-all solution that isn’t appropriate.

What are the typical barriers to working consultatively with government entities?

The organizational structure of governments means not one person has all the details, so banks must talk to multiple people to get a full understanding of its strategies before offering consultation on services.

Governments often bid for banking services using requests for proposals handled by a purchasing department, leaving little interaction with a financial institution except through email. This impedes the consultative communication that leads to an understanding of the entity’s processes, which leads to competition among banks based solely on price.

What are common government pain points?

The most common issue is in addressing its collection and dispersing of revenue in a timely, but more automated way with reduced staffing and budgets.

Government, in an attempt to collect money securely, must to do so without disrupting customer service. A bank can work with government to find the most efficient process of delivering a service in the least costly way while balancing the needs of customers with the efficient execution of duties. This often requires a lot of consulting with its financial partners.

What services can banks offer that many government entities may not realize?

Banks can offer a lot of services traditionally provided by third-party vendors, such as electronic services for billing and collection, and presenting statements.

When looking to improve their technology, government entities will often hire third-party consultants, not financial institutions, to help implement the same electronic payment services banks provide.

Governments have an obligation to stale-date a check after a certain period of time that it’s been outstanding. Banks offer a service that helps them comply with state audit rules and automatically eliminate those checks from their outstanding payments. There are also lockbox collection services for all types of payments, including electronic.

In addition, banks can help governments disburse high-volume payments such as unemployment through card services.

How can working closer with a bank be beneficial to governments?

Government entities have a fiduciary obligation to protect funds, but they must do that while serving a diverse population. Sharing information about their needs can be beneficial. In the process, government entities gain free consultants while saving money by optimizing operations and minimizing third-party vendors, protecting their information and public deposits.

Time is a precious commodity. The more governments share information with their banks the more help can be provided to save time by processing more effectively.

Insights Banking & Finance is brought to you by U.S. Bank

How to make working capital a priority for your business

The financial landscape has changed enormously since the latest economic recession — and the differences have affected everyone in business, from the smallest startups to multinational corporations.

As easy access to large amounts of affordable credit vanished, businesses quickly realized that they needed to focus their attention on building and maintaining an optimal level of working capital if they were to survive and thrive in the evolving world.

“Simply put, working capital is a measurement of a company’s operating liquidity, or the speed at which a business can convert its assets to cash. Operating liquidity is an important metric in assessing the financial well-being of a business and is particularly important to stakeholders,” says Tom Engler, vice president of the Western Pennsylvania Middle Market at Chase Commercial Banking.

Prioritizing working capital allows companies to make strategic investments, which in turn drive operational efficiencies while reducing overhead, he says. While working capital performance is not the only factor in a company’s success and growth, it’s a very important one, and certainly a good place to start.

Smart Business spoke with Engler about what you need to know about working capital in today’s business environment.

What impact do receivables have on working capital?

Having too many assets tied up can have a huge impact on cash flow. Negative cash can spook investors and shareholders, and cause lasting damage to your reputation.

Actively monitoring working capital is the first step to good financial health. Identify patterns with incoming and outgoing assets and receivables, and align them to levels of working capital. It will become easy to identify trouble spots, such as consistently late payers or invoices that are sitting out for 30, 60 or even 90 days or more.

Also, tighten up on collections. Typically companies don’t like to nudge clients, especially new ones, but it’s vital that you keep the cash flowing in on a regular and prompt basis. This is even more important when you’re working with providers from non-interest-paying markets. In cases like these, consider implementing different strategies, such as capital surcharges, which operate as fees, rather than interest. Segmenting your strategies and aligning them by market will help keep your level of working capital a priority over the long term and improve cash flow in the short term.

How do outgoing payments factor into building long-term working capital growth?

Examine your own payment terms to your suppliers. Negotiating an increase in time-to-pay sometimes is more important than price in terms of managing working capital. When it comes to new contracts, negotiate clear and extended terms upfront, and then work that information into your evolving metrics.

For more established client relationships, managing terms can seem challenging. In these cases, having a straightforward discussion is the best strategy. Put together a plan of terms that would best manage your capital levels and present it to your partner — then work together to find a solution that best benefits both parties.

How does inventory management play a part?

Just as with receivables, having your assets tied up with extra, obsolete, devalued inventory is not only bad for the balance sheet, it’s bad for your company’s long-term health. Although companies often resist reducing inventory — fearing a hit on their ability to manage client satisfaction — having a management system in place is a safe, not sorry, bet.

Include inventory metrics as you map out receivables and payables over a designated period of time. Making this project a team effort and designating a leader to set key performance indicators and measure results is essential, and it will drive cost savings and improve efficiency across your company.

In the end, it’s all about accountability. Making a long-term, strategic plan to prioritize optimal working capital takes a whole team, from the top down. As you baseline your current position, and develop sustained metrics for improvement, you’ll be making a real, demonstrated investment in the future growth and financial stability of your business.

Insights Banking & Finance is brought to you by Chase