Managing cash flow and maximizing the use of funds is important for every business, regardless of the size or type of organization.
In any business, there’s a direct relationship between the proper control of finances and cash flow and the achievement of business and service goals. In fact, business analysts say that poor treasury management is one of the main reasons for failure and is probably the most frequent stumbling block for those running an organization.
And, in today’s economic environment, it especially makes good business sense to leverage the financial tools and resources available to help accelerate the collection of receivables, better control payables and properly invest available funds.
Smart Business spoke with Christina Frank, senior vice president of Chicago-based MB Financial Bank, about how entities can manage their overall financial health by automating essential business functions through treasury management services and what they should consider when shopping for a solid financial relationship.
How can automating essential business functions help an organization’s cash flow?
Treasury management is services offered by a bank to organizations that have four objectives: accelerating cash and information flow, controlling or slowing down disbursements, reporting of real-time information and offering numerous investment mechanisms for excess capital. Treasury management services can address these goals and yield improvements for organizations by helping to lower costs, freeing valuable time and providing important financial and operational information.
What should an organization look for when choosing a treasury management partner?
In general, organizations should seek a bank that has made a financial commitment to treasury management technologies, products and support. The technologies associated with the services are ever evolving, and it should be evident that the bank is dedicated to upgrading solutions and is willing to invest the monetary resources to do so.
It’s also important to work with a partner who has the ability to customize offerings. Every organization is unique, and every treasury management solution should be, as well.
Can your bank pick and choose from a menu of technology options, such as currency vault, lockbox, remote deposit, ACH services, controlled disbursements, merchant card processing and layered administrative rites, among others, to build exactly what suits your needs? Is there training available and a dedicated customer service team in place to support you?
Even though we’re speaking about 24-7 technology, it’s smart to work with a bank that’s locally based. That means that it can respond in real time and with a real understanding of your needs.
What other liquidity management alternatives should cash-rich organizations consider?
Safety of principal and access to liquidity are likely high priorities. If the idea of earning interest while significantly reducing the risks associated with some other investment options is appealing, consider deposit products such as interest-bearing money market accounts, certificates of deposits (CDs) and overnight sweeps.
Nonbank deposit alternatives include U.S. Treasury bills and short-term agency discount notes. You may also want to consider speaking with the bank’s asset managers to create a plan on how best to mange and protect your money.
What should organizations look for in their banking relationships?
Organizations should look at the soundness of their bank. Educate yourself on the bank’s financials, its past profitability and whether the bank is well capitalized.
Research if the bank is participating in the FDIC Temporary Liquidity Guarantee Program (TLGP). The TLGP provides depositors with unlimited insurance coverage for all noninterest-bearing accounts and qualifying transaction accounts earning 0.50 percent interest or less. Because of today’s low rates paid on interest-bearing accounts, organizations may choose to increase their deposits in noninterest-bearing checking accounts to take advantage of the FDIC program and gain some reassurance.
Are there other ways to protect interest-bearing deposits?
The Emergency Economic Stabilization Act of 2008 temporarily raised the basic FDIC insurance coverage limits from $100,000 to $250,000 per depositor through Dec. 31, 2009. It’s scheduled to return to $100,000 on Jan. 1, 2010. That means that, currently, organizations only have FDIC insurance up to $250,000 on interest-bearing accounts per financial institution.
If organizations work with member banks of the Certificate of Deposit Account Registry Service (CDARS) network, they can deposit up to $50 million in CD investments and be fully covered by FDIC insurance as long as the total per entity isn’t more than the CDARS limit. Interest can be earned on multiple $250,000 CDs and different maturities and rates may be in play, but the organization works only with one bank and one account statement.
What should an organization look for if it wants to move its banking relationship?
Be sure that your new bank has dedicated resources to facilitate the transition. Banks need to have a formal process in place.
By having that, it ensures that your needs have been met, that you understand your new products and services, and that your staff has been properly trained.
christina Frank is a senior vice president of MB Financial Bank in Chicago. Reach her at (847) 653-1050.
