by Dennis Hoyt/President, Hoyt Treasury Services LLC
Excess and idle cash, vendor services you need (and those you’re paying for but don’t need), process inefficiencies, weak controls, inadequate reporting, lack of preparation—these things are all costing you now. And with further interest rate increases likely in 2018, they’ll cost you even more this year.
Maybe it’s time to give yourself a treasury/cash management tune-up.
Let’s start with the stores…
Cash balances—These are almost always higher than they should be. Especially if your stores cash checks. Why is that? Because your customer service desk views cash as their inventory, and they do not want to run out. So they hold plenty of cash, most of the time too much. How does that affect you? Well, if you are holding an extra $5,000 per store and own 20 stores, that’s $100,000 that could be used to pay down debt—or take vendor discounts. In addition to the extra interest cost of $5,000 (debt at 5 percent), you are also incurring additional labor in holding, accounting for and controlling that cash. So why not work with your stores to minimize or eliminate that excess cash?
Manual processes—You don’t need to perform a time and motion study to improve upon process inefficiencies. Challenge your stores to come up with ideas on how they can cut processing times without decreasing controls. Make it a contest. If your stores can come up with only one good idea, it will save your company time and money, and it will be well-accepted because it was their idea.
Controls—Reviewing exception reporting from your bank, credit card (CC) processor or armored carrier should give you an idea as to what controls need to be put in place, or maybe are in place but not being followed. Warning: It’s possible to overlook an inadequate control over an existing process because the control weakness has not yet been “tested” (i.e. exposed).
Vendor Services—Sometimes you need to be the squeaky wheel. Review your armored carrier pickup schedule. Maybe you should have them pick up cash more or less frequently.
Have you talked with your bank lately to see what additional services they could provide that would save you money? Meet with your bank to discuss existing services in detail, and look for services that may have been important to you some years ago but are now no longer needed.
And your CC processor—how helpful were they when you rolled-out EMV? When does your contract expire? Consider an RFP to confirm you have the best CC processor for your business.
Hardware/software—Have you considered smart safes or recyclers? And if you are cashing checks, are you depositing those checks electronically? How about a better reporting system for exceptions?
Now on to Corporate…
Cash forecast—If you don’t have a weekly cash forecast, then you may be relying on your monthly balance sheet (B/S) projections to estimate your future cash balances. A weekly cash forecast will be more accurate than a B/S forecast; it will help you borrow at lower rates (or invest at higher rates) for longer periods of time, and it will tell you when you might have cash shortages within a month. Just make sure you don’t spend a lot of time updating it with actual activity—only do so to the extent needed to reforecast. A good forecast may also be your best early warning sign of the need for a larger (or smaller) credit facility.
Financing follow-up—You probably have a credit facility with a bank. Your bank keeps track of everything, how about you? Do you have an agreement summary, where you’ve documented all of the going-forward requirements of that agreement by topic (such as limitations on distributions, prepayments, affirmative/negative covenants, interest rate calculations, etc.)? How about a calendar of all of your payment and reporting requirements, as well as those that are not date-specific (i.e. contingencies)? And do you have a forecast of your monthly or quarterly financial statement (F/S) ratios to identify those times when things might be tight?
Reconciliations—Are you reconciling your major bank accounts daily? Are you following up on your unlocated differences, or just writing them off every few months? Reconciling these accounts only monthly may not be soon enough to catch any unauthorized electronic disbursements. Which leads to …
Banking controls—Do you have all of the needed controls in place to ensure all of your disbursements are authorized—checks, auto debits, wires? Some basic controls include positive pay, ACH debit blocks/filters, etc. And when is the last time you “whitelisted” your A/P master file; could it have a virus from years ago? If you are not sure what controls you have or need, contact your bank to discuss what additional controls they can provide.
Cybersecurity—Business email compromise (BEC) is probably the most well-known method of stealing from a company, though there are many others. Unless you’ve hired a cybersecurity expert, I’d strongly recommend bringing in an outside firm to test your vulnerabilities and make recommendations. And for those of you with funds invested with a third party, make sure you find out what controls they have in place over your cash—you might be surprised.
Business continuity plan (BCP)—If only one of your 10 stores is lost—temporarily or permanently—due to fire, flood, tornado, etc., then, from a strictly cash management perspective, it may not be a significant event. That is, you may suffer many types of losses at that store, but your ability to manage cash is not really impacted. The store’s currency is probably in a fireproof safe, and your receipts are already on their way to the bank—either physically or electronically. And until that store is back online, you won’t be receiving or disbursing funds at that location. On the other hand, if that disaster happens at corporate, you’ve got problems. Your accounting records may be backed up daily, but how will you consolidate your store and other receipts, initiate payments to your vendors, pay your employees, pay down debt or borrow funds, or make other transfers? Your bank can only do so much to help. A BCP will document what needs to be done, by whom and when. Develop it one time, practice it yearly, update it as needed, and you’re good to go.
Dennis Hoyt is president of Hoyt Treasury Services LLC, providing treasury consulting to retailers and grocers nationally for more than 20 years. In his practice, he has worked on and led numerous treasury-related projects, including financings, cash management reviews, credit card RFPs, electronic payments, risk management, financial modeling and forecasting. Hoyt holds an MBA and is a CPA and Certified Treasury Professional. He can be reached at [email protected] and at 616-656-7770.