How Treasury Management Can Create Value

With all the exciting technology available for making your company more productive and efficient, it can be easy to overlook the back office when it comes to upgrading. But smart companies are taking another look at how they handle their treasury management processes, not simply to reduce costs but also to create value. “Middle market companies really need to develop their expertise when it comes to treasury management,” says Marilyn Landis, president of Basic Business Concepts, Inc., a CFO-services provider in Pittsburgh. “It’s an area where outmoded habits prevail that leave money on the table and put the company’s resources at risk.” Here are three clear benefits of treasury management services:

1. Maximizing return on cash.

Your cash needn’t sit idly. Sweep accounts automate investment and borrowing functions to maximize investment earnings, minimize idle balances, and reduce interest expense. This is how they work: At the end of each day, your checking account is analyzed to determine whether you require additional funds to cover disbursements or whether the account holds excess balances. If the account has a deficit, the system will draw funds from any investment balance first, and then if necessary, draw funds from a line of credit. If the checking account has excess funds, the system will pay any outstanding loan balance first, and then invest remaining funds into an interest-bearing investment vehicle.

2. Improving cash flow.

Checks remain the dominant method of B2B payment in the U.S. despite the fact that the cost and time to process them can be as much as four times that of most forms of e-payment¹. By taking advantage of your bank’s electronic transaction services, you’re likely to see immediate savings in this area, not to mention greater security, accuracy, and visibility into your cash flow. Here’s a look at the most popular options:

• a. Automatic Clearing House (ACH) is at the heart of any electronic processing program. ACH transactions can be used both for payment and receivables, as you can create electronic transfers to or from accounts of other companies or individuals, directly from or to your business account.
• b. Remote deposit allows you to scan checks at your place of business, and deposit the funds immediately into your account without a trip to the bank.
• c. Commercial cards are an increasingly popular solution for streamlining AP processes and reducing costs, particularly for companies that have a significant volume of travel and entertainment expenses. They permit a centralized approval process that speeds reimbursement and obviates the need for cash advances.

3. Increasing Security

The third function of treasury management, security, is also the newest, and its importance becomes clearer with every instance of financial fraud your company experiences or you hear about in the media. These are among the most effective and popular solutions:

• a. Positive Pay allows you to compare and verify the checks your company issues to those presented for payment against your account. Any check that does not match your issue file is reported as an exception item for you to either pay or return.
• b. ACH Alerts help you minimize risk and reduce exposure to fraud by monitoring debit activity and notifying you of any unauthorized or potentially fraudulent transactions based on the parameters you set. You can then elect to pay or reject the suspect transactions.

Bringing your banking processes up to date can add visibility, security, and efficiency, and like any change, it requires communication with and buy-in from stakeholders including employees, vendors, and customers. But after careful analysis by your team, you may find that there are significant opportunities to help maximize your cash management.