Treasury management encompasses all of a company’s working capital programs. There are best practices that create efficiencies in treasury operations and technological solutions that help companies manage payables and receivables. Treasury management can also involve liquidity solutions, making it easy to leverage short-term cash for investments.
Companies that adopt the latest treasury management tools increase their competitiveness and can positively affect their profits, liquidity profile, and customer and employee satisfaction.
Some companies, however, get stuck employing the same processes they’ve used for decades, ignoring alternatives that could greatly improve efficiency.
Smart Business spoke with Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank, about the effect treasury management efficiency has on business operations.
Where do companies tend to make mistakes with treasury management?
Many companies become set in their ways because they’ve got a staff that’s been in the same roles for a long time who are using the same processes that have been in place for decades. They tend not to embrace new technological advancements available in the marketplace, which means they’re missing out on strategic opportunities. Efficiently managing cash inflows and outflows creates excess cash that can be used to reduce interest expense by paying down debt and/or to increase interest earned through timely investment.
Another mistake companies make is not protecting themselves properly from fraud. Companies get comfortable with the people who run the day-to-day operations of a treasury department. Sometimes those people’s lives change, and they do things that are unexpected. There are fraud prevention tools that can protect a business from fraud, which is important because just one incidence of fraud can wipe out a company’s profitability.
Where can improvements be made in the treasury management processes?
A treasury diagnostic review can help companies discern best practices in all areas.
For payables, that could mean adopting electronic payment methods rather than paper, using virtual cards and automated clearing house (ACH) for the electronic transfer of funds.
On the receivables side, companies can receive hundreds of paper payments, which need to be keyed in manually. Improvements in receivables management now include intelligent character recognition in lockbox processing that can capture invoice data at a high quality and reduced expense.
The theme of digitization and electronification can also extend to the back office, employing processes that reduce the area needed for the paper backup of payment histories by storing them in the cloud rather than a storeroom or in rows of filing cabinets.
Companies need to have strong programs in place to protect themselves from fraud. Educating all employees about ways to avoid business email compromise and other common fraud techniques is critical to protecting company assets. Using dual control in all money movement and leveraging fraud management tools like positive pay services are also best practices.
How can a bank help companies improve their treasury management processes?
It’s easy for companies to get caught up in their day-to-day tasks and overlook some of their lost opportunities. They also just might not be aware of all the tools available from banks that could help them become more efficient.
A bank’s goal is to be a trusted, consultative adviser that can talk with business owners to get a clear understanding of their operating environment. Banks work with clients in many industries, which gives them broad knowledge of the treasury management and back office practices being used, which helps them discern best practices and tailor that knowledge into actionable insights for their clients.
Companies should leverage their banker to get another perspective on what’s happening in the market and what resources are available to avoid fraud, and work together to drive business results. By questioning the status quo, companies can drive their business forward.
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