Your banker can offer insight into improving your cash flow.Business owners use a variety of utilities to operate their companies, including gas, electric, cable and water. But how do you view your bank? Research discussed at a recent Small Business Banking Conference suggests that most small business owners see their bank as just another utility.
If this is how you view your bank, you may not be taking advantage of all the services your banker can provide. Most owners have a team of advisers to help them manage the company’s affairs. Attorneys, CPAs and trade associations are usually considered essential team members. If your banker is not a part of your team, you could be overlooking a valuable resource.
What can your banker bring to the table? Cash flow is a critical component for any business. The last several years have reminded business owners about the importance of building and maintaining a cash cushion. Problems with liquidity are one of the first challenges an owner must face during tough times.
Your banker can help you manage your cash flow by looking at ways to contain costs, improve operational efficiencies and optimize your current capital. Many commercial bankers focus on certain industries, such as manufacturing, health care and agriculture, so they can understand the trends, challenges and financial ratios important to owners in that line of business.
Most business owners agree that they can improve the efficiency of their company’s working capital and cash flow. Where should you start your search? Most bankers would recommend taking a look at your accounts receivable, accounts payable and investment processes.
Receivables
First, you should review your current account receivable practices. How fast do you collect your receivables? How are your customers paying you? Do you use a lock box? Do you take advantage of your bank’s remote deposit or ACH services? How do you collect past due accounts?
When you streamline the accounts receivable process, you can reduce your costs as well as free up your people to perform other tasks.
Payables
Second, look at how your payments are processed and how you track your expenditures.
How much paper is required to process an invoice? How many people are involved in the check request and approval process? Do you take advantage of trade discounts offered when you pay the invoice early? Are you using your bank’s electronic payment systems, corporate credit card options and payment control processes? Your accounts payable overview should also consider your exposure to check fraud and how you want to control spending.
Investment Processes
Third, examine how you are utilizing your liquidity.
Do you have an emergency fund? Are you trying to pay down a debt? How are you investing your money? Are you saving money for a large expenditure such as a new building, new equipment or more inventory? What type of investments are you willing to utilize? Do you have line of credit set up for a short-term cash need?
By focusing on cash flow, your business can be better prepared to sustain difficult times as well as handle growth. Let your banker help you put the processes in place so you can get more cash and lower your cost of capital when you need it.
Kevin Kramer is executive vice president at Bank Midwest, a division of NBH Bank, N.A. (816) 298-2110 // www.bankmw.com
