PrintQ: How can my bank help me with short-term cash management?
A: As the business adage goes, cash is king -- and finding ways to optimize short-term cash flow can be a significant challenge for business owners. Fortunately, there are two key ways that your bank can help you actively control your cash flow: payables and receivables management, and short-term financing.
Your banker should be able to help you choose from a number of account options that let you direct your daily cash balances in the most efficient way, freeing up cash for operations or investment. Look to your bank to provide daily reporting on your balances and your inflows and outflows. This important information about your cash position gives you the information you need to manage your balances wisely.
Payables
In the payables area, consider a controlled disbursement account. With this type of account, you receive a daily notice from your bank letting you know about all the checks that have been presented for payment from your account. You can then decide how much cash to transfer in to the disbursement account, leaving your remaining cash in another account that gains interest, for example. You can also create a business sweep account. Here, excess cash balances are swept out of your depository business checking account each night and returned to you the next business day, but with extra interest paid to you.
Additionally, Automated Clearing House (ACH) electronic payments can be set up for payroll and other recurring outflows to increase efficiency and cut down on processing costs. Your bank can also certainly initiate wire transfers for same-day payments. Finally, you can open a business credit card account to help manage cash flow and track spending. Some even offer cash back and the ability to set spending limits on a by-employee basis.
Receivables
Receivables are the other side of the cash equation, and there are many ways your bank can help you access your incoming cash sooner. First, look into setting up a lockbox if it is appropriate for your business. Customers send payments directly to a lockbox -- usually a P.O. Box -- that your bank can access. The bank then processes the checks and deposits the money into your account immediately, so the cash hits your account significantly sooner than if you were collecting in-house. There are also online check deposit services that let you scan checks that you’ve received and send them directly to your bank, which still keeps your team in the loop, but at least eliminates an actual trip to the bank. Of course, your bank can also process credit card payments through their merchant services department, which allows the funds to hit your account quickly. Finally, if you have customers who pay you on a monthly basis, your bank can help you establish pre-authorized debit payments directly from their accounts via ACH -- ensuring you get paid each month, on time.
Another important way your bank can help your business with cash flow is by providing financing options. You can obtain a term loan for a specific project like expanding your facilities. For seasonal or other short-term financing needs, such as increasing inventory during your busiest time of the year, your bank can provide a line of credit. This gives you the flexibility to access only the amount of financing you need, as you need it. Finally, your bank can arrange equipment leases for your business needs -- computers, vehicles, furniture, or other equipment can be leased through your bank rather than purchased by your business, freeing up your cash and protecting you from being stuck with outdated tools and equipment.
