Cash flow has
been called the lifeblood of business and it’s easy to see why. Sure, sales and
profits are important, but it’s cash that keeps the wheels of your company
effective cash flow management one of the most important tasks for any business
owner. Understanding the basic concepts of cash flow and how to use cash
management tools offered by commercial banks can help your business gain a
It Starts With Collections
can be divided into three primary components: collections, disbursements and
information reporting. For most businesses, better cash management starts with
more efficient and timely collections.
A lockbox is one
of the most helpful tools offered by banks to speed up collections and maximize
available cash. Instead of mailing payments directly to your business, clients
mail them to a special post office box that the bank checks multiple times each
day (including weekends and holidays).
processed around the clock, which reduces mail and processing float. Also,
image technology improves accuracy and enables better audit controls. There are
two kinds of lockbox services: wholesale, which is designed for companies that
receive a low volume of high-dollar remittances, and retail, designed for
companies (like utilities) that receive a high-volume of low-dollar remittances.
receive a high volume of checks at the point of sale, like retailers and
medical professionals, may benefit from Remote Deposit Capture (RDC). With this
service, you receive a specially designed desktop scanner and software that
enable you to transmit check images to the bank remotely from your place of
business. You reap the time and cost savings of not having to send employees to
the bank to make deposits, as well as greater accuracy, better float management
and faster access to funds.
Disbursement and Reconciliation
The flip side of
collections is disbursements, or how you’re paying your suppliers and vendors.
The goal should be to hang onto your cash as long as possible, within your
agreed-upon vendor terms.
Banks offer a
variety of online payment options through the Automated Clearing House (ACH)
that can help you streamline your payables, reduce costs and improve cash
management. These include payroll direct deposit, pre-authorized debits and
credits, cash concentration and electronic tax payments.
hand-in-hand with disbursements is account reconciliation. With these services,
the bank simplifies the task of reconciling your bank account by providing you
with electronic check-paid information. You save time and money through
streamlined end-of-month reconciliation and reduced exposure to check fraud.
Positive Pay is
a specialized account reconciliation service that helps further reduce the risk
of check fraud. The bank will compare all checks presented for payment each day
with a check-issued list you send and pay only those that are an exact match
with your list. Others are flagged as suspect and reported back to you so you
can decide whether to pay them or not.
Timely Information is Key
is made more difficult for many smaller businesses due to a lack of access to
timely and accurate account information. Banks offer a variety of online
information reporting services that provide detailed, up-to-the-minute data
that can help you make better financial decisions. This includes prior- and
same-day account balances, lockbox detail, account analysis and more.
When you know
what your cash position is at any given time, day or night, you can make
important cash management decisions more easily—decisions like whether to pay
down or borrow from a line of credit or move excess funds into short-term
investments. These kinds of reporting services may also enable you to initiate
online transactions yourself (such as ACH, wire transfers and tax payments) and
view check images and deposit tickets online.