Today’s interest rate environment puts immediate pressure on working capital levels, but it is cash flow management that converts improvements into reduced liquidity needs and lower interest expense. Better data trails, left by an increasing number of electronic transactions, open new opportunities to lower capital costs with better planning, more timely cash movement and integration with operational and financial systems.
Higher capital costs demand new management processes to handle both short term operating cash and strategic cash. Retuned investment policies and liquidity management tools maximize cash management efficiency and harvest opportunities in a changing rate environment.
10 Steps to revitalize cash management
As your business sees an increasing need to reevaluate its liquid asset allocations and maintain visibility of balances and transactions, you should:
1. Link your capital strategy and your long-term business plans
A capital strategy built on a Six-Year Plan with its more strategic outlook results in grounded goals for weighted average cost of capital, debt/equity mix and capital sources.
2. Ramp up management of working capital
Improve collections with lower Days Sales Outstanding (DSO), optimize accounts payable with greater Days Payable Outstanding (DPO) and reduce inventory with lower Days of Sales in Inventory (DSI). The latest integrated payables workflow and electronic payments capabilities heighten visibility, improve real-time data availability and tighten controls, all at lower transaction costs.
3. Update investment policies for today’s rate environment
Rethink investment policies and goals that drive decisions on investment vehicle selection, benchmarks, strategic cash levels, etc. Rebuild staff skills around liquidity decisions and investment policy execution.
4. Prepare cash visibility, management and reporting systems
Well-structured investment policies are only as good as the systems you execute them with:
- A consolidated and timely picture of cash aggregating all sources and all accounts
- Customizable views providing management and control of your cash flow
- Advanced cash planning capabilities
5. Shift funds to highest earning accounts
Tighten timing by performing routine and one-time payments online through ACH and wire transfers. Take advantage of short-term, high-return investments or use “just-in-time” strategies to increase interest income. Train your staff on managing funds for highest return: remember that many of your staff may have never operated in an environment where the cost of funds mattered.
6. Reduce borrowing with better predictability
Project operational cash requirements so you can invest in growth and not be hampered by uncertainty. Daily use of tools such as a cash position worksheet guides working capital requirements. Modeling of seasonal and cyclical cash patterns can further increase cash forecast accuracy.
7. Manage accounts across locations
Monitor excess cash across location and to easily move cash to where it’s needed. Concentration of funds from multiple locations reduces calls to lines of credit and prevents excess cash from building in unproductive accounts.
8. Upgrade your cash management toolset and integrate receivables data from multiple sources
Cash management tools with modern user experiences are easier to learn, and they let your staff complete tasks faster. Consolidate reporting of paper and electronic receivables for faster and more efficient posting and better-informed borrowing and investment decisions.
9. Collect data for internal accounting, treasury integration and reporting
Exporting files for data integration and customized reporting leaves a body of data that can be extended for more precise predictive models and reports. Electronic processes like integrated receivables reduce manual intervention and take advantage of automated reconcilement.
10. Don’t forget about fraud
Online fraud control systems such as Trusteer Rapport Fraud Protection, ACH Fraud Control, and Positive Pay extend traditional fraud control techniques. Combine the tools with cash forecasting to catch fraud before it grows.