The art of balancing cash flow and electronic payments.

• Author: Frey, Mark
• Position: TREASURY

Managing cash flow in the ever-changing business environment--even with the available reporting tools and treasury management systems--remains as much an art form as a science. Understanding funding ebbs and flows, payment cycles and cash calls are critical determinants of business success. This is especially true for high-growth companies, where resources often are in scarce supply. There are several key strategies for reducing costs, streamlining processes and ensuring that cash is available to capitalize on business opportunities.

1. Employ Low-Value Electronic Funds Transfers

   Streamlining payment operations and migrating to electronic forms of payment brings opportunities and challenges. It can produce significant dividends resulting in increased transparency and forecasting accuracy.

   Subsequently, weaning a firm from an over-reliance on the "float" that comes from outstanding checks is often underestimated. Employing low-value electronic funds transfers can be an effective means of cutting costs and ensuring funds are held as close to required payment dates as possible, thereby minimizing the financial impact of no longer having a float from uncleared checks.

   Further, an electronic payment that arrives on the assigned payment due date is preferable for vendors to checks that may not only arrive late, but also could be subject to an extended clearing time before the beneficiary receives full value. Accuracy and timeliness are critical in terms of qualifying for early payment discounts--vendors paid in full and on time are often happy, and happy vendors become trusted business partners in the long run.

2. Establish a Controlled Disbursement Account

   For some vendors, migrating to electronic forms of payment simply isn't possible. When vendors want to stick with the tried and true, it can be helpful from a cash management perspective to put a controlled disbursement system in place. This is especially valuable when items experience significant clearing times and delays when presented to the bank.

   The uncertainty over when checks will clear an account can cause needless fund tie-ups over a sustained period of time in anticipation of the item being processed. A controlled disbursement account effectively provides 24 hours' notice of an impending check. Implementing such a system enables an account to be funded on an "as needed" basis, instead of parking cash for an indeterminate period in anticipation of the paper item going through.

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