Businesses focus a lot of on R&D, production, marketing, sales and financing, and with good reason. These areas of their operations are central to their growth strategy, but they may not deliver the expected results if cash isn't readily available. In fact, highly profitable businesses often run out of cash and into unforeseen challenges.
Cash management is an oft-neglected yet essential aspect of business development because it helps companies use cash on hand efficiently. It helps companies plan for cash inflows and outflows, manage their forex risk, collect receivables faster and settle payables on time. It also helps them plan their investing and borrowing wisely so they can make the most of the cash on hand in the normal course of operations.
According to cash management specialist Sarah Chamberland, head of Large Business Banking Services at Desjardins, "The importance of knowing precisely how much cash you have available, collecting receivables quickly and efficiently, and managing payables closely cannot be overstated." Whether a company needs to get a clear view of its accounts with multiple financial institutions, collect or pay amounts owed electronically or by imaging, or make the most of exchange rates for international transactions, cash management should be a key priority.
Ms. Chamberland demonstrated how such a strategy can pay off by explaining that one of her clients, a Montreal business, saved tens of thousands of dollars a year on interest charges by setting up a cash management platform. It gave them an almost real-time view of their cash around the world and helped them repatriate it quickly to pay down its Canadian bank loans. It previously took them one to two weeks to get the information they needed from their international teams, and they sometimes missed out on great opportunities to pay back their loans or invest.
The benefits of sound cash management are clear, so why don't more businesses make it a priority? Ms. Chamberland believes many factors could be at play:
• Business leaders and their financial advisors still don't know much about the cash management products and services offered by financial institutions
• Since cash management products and services are specialized as opposed to mass market products, financial institutions don't invest as much in marketing them
• Resistance to change
• The fear of spending too much time and money on implementing new solutions
• Poor cost-benefit analysis of these solutions
If you aren't already using this innovative tool, talk to your account manager and ask what technology and other approaches like factoring you can use to improve your cash management. Your business can only benefit.