Time to re-evaluate Featured

8:00pm EDT May 26, 2009

As the financial crisis continues, the uncertainty is affecting companies from the top down. Every person at or near the top of an organization is scrambling to find new and inventive ways to raise capital.

This is especially true for treasurers and other financial executives. Managing a company’s assets and liabilities is more difficult and more important than ever, so treasurers are being forced to re-evaluate each and every collection and payment process or strategy.

These assessments include looking at how money is collected, how payments to vendors are handled and what type of relationships companies have with their banks and creditors.

“In today’s economic environment, many companies are conducting value proposition analyses to ensure they have the right tools in place within the treasury function,” says Joy Gilmer, senior vice president of treasury management for Comerica Bank. “It’s important to review your treasury processes and strategies. What was appropriate before may not be today.”

Smart Business spoke with Gilmer about treasury management and how companies can re-evaluate their processes, cut spending and grow capital.

How can treasurers better manage their processes and strategies?

In times like this, there is value in going back to basics. Take a step back and answer the following questions: Are we collecting money as quickly as possible? Are we making it easy for customers to pay us? Are we truly controlling incoming and outgoing payments? Are we truly getting value in our disbursement and collection processes? Are we taking advantage of the efficiencies and sustainability of electronic payments?

As companies are doing more with less, a renewed look at treasury processes and strategies could bring about great discovery and save the company in ways not previously considered.

What should be considered when assessing collections?

Timing of collections is even more important during economic uncertainty. You can start by evaluating preferred tools for initiating payments to your company. Creating ease for customers to make a payment can increase the speed in which they pay. Online bill payment systems and the ability to accept credit cards are examples of these tools. Both provide increased controls and a variety of reporting options.

You will also want to look at lockbox systems and remote deposit programs for processing incoming checks. Lockbox systems quickly and accurately track and manage incoming payments and exception items, helping you eliminate unauthorized discounts. Also, by putting the onus of collecting and depositing on the lockbox vendor, you have appropriate separation of duty and you can focus on core business. Remote deposit programs enable you to scan checks and transmit the scanned images and/or ACH data to your bank for posting and clearing. The benefits include later deposit windows, accelerated clearing and improved availability.

How can a company evaluate its payment strategies?

Again, find ways to utilize electronic payments and leverage that into cost savings and improved payment processes. Also, negotiate better payment terms with your vendors. Look for ways to redeploy your treasury tactics into more revenue-generating purposes. This will lead to measurable results to the bottom line.

Integrating treasury services, such as card programs, information reporting and payment systems, with your accounting system is one way to accomplish these results.

How can a company re-evaluate the role of short-term liquidity in its portfolio?

Safety and soundness of capital is key in today’s economic setting. Many companies are prioritizing soundness and liquidity with a focus on securing capital. By taking advantage of the FDIC unlimited guarantee for certain noninterest bearing accounts, a company can place money and take advantage of earnings credit rates, which offset bank service fees through account analysis.

There are several information-reporting and cash-forecasting tools available to provide intelligence needed to change liquidity decisions as need be. As time goes on, having access to this information will be vital to short-term and long-term liquidity decisions.

Should a company diversify its banking relationships?

While a company may find it advantageous to maintain more than one banking relationship to meet its needs, it’s key to have a solid lead bank in that group — one that has cash management products that provide a consolidated view of all banking relationships and has strong concentration products that provide one-stop cash management for those relationships. Remember, you can leverage loyal, full-service relationships for value on pricing.

If a company is not properly monitoring its cash management and treasury processes, what consequences could it face?

Cost of capital and opportunity cost are at risk. Customer and vendor relationships are at risk. Maintaining solid treasury practices within your organization will keep you in control of your financial position, risk management and business relationships.

It is important to have routine conversations with your treasury management provider. As your company’s needs change, even fluctuate with economic cycles, your ability to manage your cash position and payments needs to remain strong.

Joy Gilmer is senior vice president of treasury management for Comerica Bank. Reach her at jegilmer@comerica.com or (714) 435-3931.