How You Can Improve Cash Management

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


This makes

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

competitive edge.

It Starts With Collections

Cash management

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).

Payments are

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.

Companies that

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

Cash management

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.


Don Sadler is a freelance writer specializing in the areas of small and middle-market business. He has written for numerous business publications over the past 20+ years on a variety of different business topics, including financing, cash management, marketing, business planning and human resources. Reach him at or visit

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