10 Ways to Improve Your Cash Management Plan
Business owners and CFOs can spot opportunities for improving cash management strategies by reviewing how the business functions day-to-day. Five main areas that affect the cash flow of your business include:
- Information Services – Having access to your account information real time.
- Collections – The processes and methods in place for collecting receivables.
- Disbursements – The processes and methods in place for payables.
- Fraud Detection Strategies – Fraud prevention strategies that have been implemented.
- Funds Management – How your funds are managed.
The following are 10 common inefficiencies within cash management strategies and ways to improve them.
Information Reporting Services
Having up to date and accurate account information at your fingertips allows you to reconcile your accounts to best reflect the cash position of your business. While some information reporting systems have shifted with advancements in technology, others remain tried-and-true.
1. There are no dual controls in place.
It can be easy for businesses to get used to having a single employee manage business transactions. But having dual control or what auditors call “segregation of duties,” such as having one employee manage the accounts payable and another employee issue the checks, is extremely important to ensure accuracy in your books. While there will be some overlap in implementing these roles, it is better to have an extra set of eyes to spot any account discrepancies.
2. Your business relies on paper statements to review account activity.
If your business is relying on the same account management system it’s had for the past 20 years, it’s time for an upgrade. Waiting until the end of the month to review your bank statements increases your risk of fraud and is inefficient, given the available resources. By switching to online banking, you can track your account transactions in real time and catch suspicious charges as soon as they occur.
In a perfect world, receivables would come in on the exact date requested by your business. Unfortunately, we don’t live in a perfect world. Invoices disappear, payments get lost in the mail – life happens. Luckily, there are steps you can take to ease the process of receiving payments.
3. You often receive late payments from customers and vendors.
Offering early payment discounts will give customers and vendors incentive to pay their balance as soon as an invoice is received. This benefits both the business and the customer, saving both time and money in the event of a late payment.
4. Your business doesn’t accept payments electronically.
ACH (Automated Clearing House) origination lets you electronically send and collect payments through the ACH network, streamlining your payment processes and eliminating checks. ACH also provides precise control over your cash flow by giving you the ability to specify the settlement date of remittances and payments. ACH Origination helps you gain greater control over your cash flow by specifying settlement dates for payments and remittances. In addition, you receive a complete record of transactions for a precise audit trail.
Even if your business makes its payments on time, there may still be room for improving your accounts payable processes. When you’re aware of enhancements that are available to your business, you’re more likely to strengthen your cash management plan.
5. Your business makes payments using only paper.
By switching your payables from paper to electronic, your business will see added benefits in the speed, security, cost and convenience of your payables process. As an added benefit, you will decrease your impact on the environment.
6. Your business is not using the terms of payment to its advantage.
Send payments electronically when they are due, rather than in advance. Doing so will allow you to retain funds and earn interest while staying current with vendors.
Fraud Detection Strategies
Business owners often do not set up fraud prevention techniques until they experience fraud. By being proactive and implementing these strategies, you are taking control over your banking accounts with the advantage of catching a fraudulent charge as soon as it occurs.
7. Your business lacks an internal fraud prevention control system.
There are many ways to prevent fraud through internal control systems. Confidential information should be kept in a secure location and mail containing sensitive information should be delivered directly to a mailbox or post office. Your staff should be trained on methods to spot fraudulent activity and know the policies for use of confidential information such as customer and employee information and financial data. In addition, your account transactions should be monitored for suspicious or fraudulent charges.
8. Your business bank accounts have not implemented an ACH Filter or Positive Pay.
An ACH Filter, which can accompany ACH Origination, allows you to define acceptable ACH debits and credits – by your phone or internet provider, for example – to clear your business accounts. An ACH Filter gives you control and helps protect against unauthorized or erroneous ACH entries. You can set various criteria to authorize some ACH debits and/or credits to post to your account. If any items do not match the filter data, that information is provided to you to determine whether to honor or return the ACH items. Exception processing also permits unresolved items to be returned unless the bank is notified.
Positive Pay service quickly identifies possible fraudulent checks. Positive Pay is an automated check matching service that compares checks presented for payment with a list of the checks your business has issued that is uploaded into an online banking system, giving you the chance to review any checks that don't match to your issued file and make the decision to pay or not.
Businesses keep a close eye on cash flow, especially in the midst of fast growth, but it’s often time-consuming and inefficient. For example, cash sitting in an account dedicated to payroll may not provide the same benefit as it would paying down a line of credit or in an account for operations. Instead of micromanaging your cash flow, implement automated fund management systems to save on interest expenses, manual payments and overdraft fees.
9. Your excess cash isn’t maximized.
When your business uses a number of accounts to segregate money, a Zero Balance Account (ZBA) is the fastest, most cost-effective way to monitor your account balances.
A ZBA is a company checking account that is automatically maintained at a zero balance or a pre-designated balance of your choosing. Checks are written on or deposited to the ZBA. At the end of a business day your individual ZBAs are brought back to a zero balance by automatic transfers to or from your main company checking account at Anchor Bank. You can fund as many ZBAs as needed with this system.
A ZBA enables you to consolidate all excess cash in one company checking account to maximize use of your working capital. It is a great way to keep functional accounts, such as payables, receivables and payroll, separate from your regular accounts.
10. The target balance for your business deposit account isn’t being met.
Loan Sweep provides an automated, convenient and cost-effective way to maintain a target balance on deposits while minimizing your borrowing costs. As your cash position changes from day to day, Loan Sweep responds automatically to your cash flow needs.
Based on each day’s account activity and your specified target balance for your deposit account, funds are automatically transferred. As your cash position changes from day to day, Loan Sweep gives you the ability to respond immediately to cash flow needs through your primary deposit account. In addition to increased efficiency, businesses with Loan Sweep have seen an elimination of overdraft and minimized interest expenses.
Work with your Business Banker and accountant to determine the need for an improved cash management plan. To learn more about the cash management services at Anchor Bank, contact your Business Banker or Cash Management Specialist.