Your Bank > Education and Advice > CNB University

Cash Management - How Important is it?

M O'Donnell
Michael O'Donnell
Vice President, Business Banking Officer
[email protected]
(585) 394-4260 x36228

Recently we had a conversation with a small business client, when the discussion of cash management came up. Our client was lamenting the fact that she just could not seem to match up the time that her business received payments from customers, with the interval of time to make payments to suppliers and vendors, in a timely manner. It is the classic challenge for all businesses, small or large - how can they bridge the timing difference in receivables and payables effectively, while improving efficiencies in operations and reducing costs? The answer lies in an effective and well thought out cash management plan for the business. 

What exactly is cash management? Simply put, it is the process of managing revenues and expenditures that flow into and out of any business. It takes many shapes and forms, for all different types and sizes of businesses. In years past, the standard process was relatively simple: the business collected cash or checks from rent payments, sales or operations and then went to the bank to deposit the funds. In many cases, a lag would occur from the time a sale was made or services rendered, to when payment was received. Once revenue was received and deposited, payments would be made by the business in the form of checks to vendors and suppliers. Knowing when payments would be made to your business and matching that up to when your business needs to pay expenses, became a challenge – known as “timing difference”.

Businesses face that same challenge today. The good news, though, is that there are a number of solutions to the age old “timing difference” challenge today that weren’t available 20, 15 or even 10 years ago. Financial institutions have invested extensive resources in technology that allow business clients to “speed up” the collection of receivables (inflows) and match that up with the payments to vendors/suppliers (outflows), thus bridging that timing difference, increasing the efficiency of operations and ultimately saving the business money. What are some of these solutions? 

  • Online Banking - Businesses can literally view account balances and up to the minute bank statements, so reconciliation can be done daily, not monthly. Funds can be moved from one account to another instantly with a simple click of a button, enabling funds to be in the account they need to be in, when they need to be there. Basically any banking function can now be done online, and with laptops and smart phones anywhere you have the internet. Electronic statements are also available, saving time and paper. 
  • Electronic Transmission of Funds - The ability to send money electronically and automatically, to individuals, businesses, vendors, suppliers and basically anyone. Eliminate the need and expense of checks and postage. Pinpoint exactly when a vendor is paid – taking advantage of payment terms and discounts. 
  • Electronic Collection of Funds - Collect payments from customers/clients - the ability to know exactly when you will be paid, bridging the timing difference. Customers can be set up for reoccurring payments any time during the month, reducing collection expenses and challenges. 
  • Make Deposits Directly from your Business - Eliminate the need to go to the bank to make deposits. With a check scanning machine you can deposit checks directly from the office. A huge savings of employee time, travel expenses, and a huge increase of efficiencies within the office. 
  • Credit & Debit Card Acceptance - The ability to take a credit or debit card as a method of payment from clients and vendors, in person, over the phone, or online. 
  • Business Credit Card - Make purchases of office supplies, gas, etc. with varying terms and repayment options. A great way to track expenditures. 

The really unique feature of all of these services, in our opinion, is the fact that the need for them transcends across all different business sizes and sectors. For example, proper cash management is critical to the vitality and bottom line of the small retail store on Main St., the mid-sized property management company, the large manufacturer and all businesses in-between. Any business owner will tell you that cash management is one of the most important parts of their business.

Though, with all the great technology available, it still comes down to people. Individuals that will help you set up these useful services, train and educate employees on their use, and be there for support when questions arise – that is the great differentiator of services. In addition, a support staff that is at the cutting edge of technology – as new and more efficient ways to manage money evolve in the future. Ultimately, it is the relationship between the bank and the business – partners in its health and success. 

Our business client was ultimately relieved after we concluded our conversation. We have come a long way in the cash management world – with exciting things yet to come. She was thankful to learn about her many options, and excited to begin to use the services and see her profits and efficiency soar!