Few treasurers or CFOs could have predicted the full implications of the credit
crisis that began in 2008 and the trickle-down effect that left financial executives
scrambling for safe havens of liquidity. The
familiar functions of managing the company’s assets and liabilities transformed almost
overnight and will continue to change if the
federal government announces updates to
proposed bailout plans.
Smart Business talked with Bill Booth of
PNC’s treasury management group about the
impact of the crisis and also some tactics
treasurers can employ as they try to maintain
liquidity and minimize long-term damage to
their organizations.
What are some of the options and opportunities treasurers can evaluate to help manage
their processes and strategies?
has become very meaningful under the present cost of capital scenario and adjusting the
collections and payables processes is now
becoming a consideration for treasurers. Due
to advances in technology, treasurers today
have access to timely information that can
ultimately reduce Days Sales Outstanding
(DSO). Analytics are also available through
sophisticated lockbox programs that can
help to drive down unauthorized discounts
and deductions by tracking and managing
exceptions faster and more accurately. These
more sophisticated collection strategies can
help you to begin to lessen the difference
between gross and net sales.
Another solution to consider is remote
deposit or remote capture, a newer technology that enables businesses to scan paper
checks that have been received as payment
and transmit the scanned images and/or
ACH-data to a bank for posting and clearing.
Benefits can include accelerated clearing and
improved availability.
certain that your company has selected the
best method of payment to maximize efficiency, float or revenue sharing to ensure the
best return. Some companies are turning to
their purchasing card programs as a solution
to boost cash flow and increase working
capital.
A card program can be integrated into your
existing accounts payable process and
extend payment cycles beyond what they
would be typically. Even if you’ve tried
unsuccessfully to integrate a purchasing card
program in the past, a weakened market may
be a reason to revisit this option.
How can organizations better manage external factors through a credit crisis?
investments. Before the credit crunch,
many treasurers evaluated their short-term
investments by considering the yield first
and then liquidity and risk. The tide has
turned. Think about reprioritizing and
choosing less risky, short-term investments
over return to help protect the financial
health of your company. In today’s environment, with certain noninterest-bearing transaction accounts being fully guaranteed by
the FDIC through Dec. 31, 2009, leaving
money in your checking account to receive
earnings credit against fees may be a short-term strategy worth considering.
Treasurers may take some comfort that, as
some of these circumstances seem out of control, they can exert some influence over
the cost of capital at their firms. Don’t always
sacrifice project-oriented tasks for damage
control. It is at times like these that strategic
projects (particularly those involving payment processes) can have a valuable impact
on the company.
For the last decade, treasurers have invested in cash management solutions with an eye
toward efficiency and productivity gains or
client service impacts. The cost of funds has
been a secondary consideration. Now, with
borrowing costs doubled or tripled, the equation has changed. As a result, corporations
that invest in strategic projects that help to
minimize the escalating cost of capital can
reap the benefits now and in the uncertain
future.
hardest challenge to predict and manage may
be the impact of the loss or impairment of a
critical financial services provider. Having to
replace a major bank provider midway
through a large acquisition transaction could
be a disaster without a well-thought-out
backup plan. Assess the financial health of
your bank(s) and consider spreading your
company’s exposure with multiple banking
relationships and exiting those in which you
have less confidence.
This article was prepared for general
information purposes only and is not
intended as legal, tax, accounting or financial advice, or recommendations to buy or
sell securities or to engage in any specific
transactions, and does not purport to be
comprehensive. Under no circumstances
should any information contained herein be
used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance
upon this information is solely and exclusively at your own risk. Please consult your
own counsel, accountant or other adviser
regarding your specific situation. Any
views expressed herein are subject to change
without notice due to market conditions and
other factors.
©2009 The PNC Financial Services Group
Inc. All rights reserved.
BILL BOOTH is senior vice president and manager of national large corporate and institutional markets in PNC Bank’s Treasury
Management Group. Reach him at (570) 961-6949 or [email protected].
