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Creating Working Capital and Cash Flow Efficiencies

University Business, Oct 2008

America is facing a challenging time. With a weakened economy and limited resources, businesses — regardless of size and industry — need to ensure they are maintaining a positive cash flow. And higher educational institutions are not immune.

Today, more than ever, strong cash management practices are essential to the sustainability of any organization. Fortunately, these practices — and the technologies that support them — are continuously evolving and changing the way we do business. By employing specific cash management strategies focused on optimizing receivables; maximizing liquidity; controlling payments; and mitigating risk, a college or university can maximize its availability of working capital, even in these tough times.

The first step in developing a comprehensive, effective working capital strategy is to implement steps to increase funds availability. Accelerating your institution’s receivables process is of central importance. The following are a few of the options that will help you optimize your receivables:

--Outsourcing — Using lockbox services, your receivables can become available cash faster. These services utilize image-exchange technology that allows checks to be cleared electronically as images. Benefits to using a lockbox include reduced transportation expenses, increased speed and accuracy of deposits, and detailed remittance and deposit information transmitted electronically.

--Remote deposit capture — This technology allows for the utilization of desktop scanning devices and software to capture images of checks at a remote location. Checks are then deposited by transmitting images to a bank instead of physically delivering the original paper items. Benefits include consolidation of accounts at one bank, extended daily deposit windows, and faster check clearing by making deposits earlier in the day.

--Eliminate paper — One of the fastest-growing trends in banking is the shift from paper to electronic payment processes. Utilizing the Automated Clearing House (ACH) network, your institution can experience faster funds availability and reduce risk by accelerating the receipt of return item information. Card payments, which offer the same benefits, are also increasing.

Liquidity solutions present important opportunities for businesses to maintain and/or maximize cash flow. For institutions looking to effectively manage short-term cash, liquidity solutions — earnings credit rate (ECR), sweeps, savings accounts, and term investment vehicles — are strong options.

Returns can also be increased by minimizing or offsetting banking fees. To do this, organizations should consider a managed ECR as a component of a balanced compensation program. ECR allows businesses to offset some banking fees by allowing them to maintain a balance on their accounts.

Another option is the utilization of sweep accounts. Sweep accounts are designed to invest the excess money from an account once all payments have been made, enhancing an institution’s earnings potential. Sweep account investment options are available based on an institution’s needs. Some are designed for companies seeking maximum return on investment, and others are focused on providing maximum security.

Other liquidity options include money market deposit accounts, jumbo CDs, money market mutual funds, and fixed-income securities. These term investment vehicles are structured to preserve principal, limit risk, and provide additional sources of interest income.

Today, cash managers are taking a closer look at the payments process to ensure that the timing of payments has a direct link to both optimizing liquidity and managing costs.

Controlled disbursement accounts deliver a high level of control over the funding of payment accounts. These types of accounts allow the payer to specify when funds will be presented to the payee bank, with the ability to fund the exact dollar amount required on a same-day basis. This can help reduce the tendency to over-fund disbursement accounts. Controlled disbursement accounts can also help to moderate interest expenses by reducing the need to borrow.

As in the receivables process, eliminating paper in the payables process is advantageous. ACH payments can help to simplify statement reconciliation as well as improve cash flow forecasting.

The use of cards for payments is on the rise. Procurement, or P-cards, can reduce the cost of making payments and can also provide enhanced security and transaction details.

With fraud being ever-present in the banking landscape, it is crucial for your institution to incorporate ways to mitigate risk. Here are some measures your business can take to protect its working capital strategy from fraud:

--Reconcile on a timely basis

--Utilize electronic processes — online reporting is an essential tool in fraud detection.

--Protect account information, user IDs, and passwords

--Protect your computers from viruses and malicious code

--Use two-factor authentication — verify user identity with a user ID and password, plus a stronger factor such as a digital certificate.

--Employ a positive pay method — to verify payee names and payable amounts.

--Utilize ACH blocks and filters to all accounts — add this extra layer of fraud-protection if your institution uses ACH as its payment method.

By incorporating the above-mentioned elements into your institution’s working capital strategy, you can be more certain of weathering the storm. Please contact your financial partner to see which working capital solutions are best suited for your needs.

Jeff Spetrino serves as portfolio management manager and chief operating officer - Public Sector for KeyBank. He can be reached at

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