Many owners of small to mid-sized businesses pride themselves on bootstrapping their businesses, running a lean operation, and being savvy at investing in the right strategies and methods to help their businesses grow.

But many business owners may not be aware of the ways they could keep more of their profits just by making a few simple adjustments to their cash management practices.

Even the smallest businesses often can save significant money by changing the way they manage their cash on hand — no matter what is happening with the economy or with your business sales trends. By getting the most out of your cash flow, you will be better protected against an economic downturn or cash crunch, and better positioned to build a stronger, cash-rich future for your business.

Here are four simple cash management tips to help your business strengthen your balance sheet and build your financial foundation.

1. Set Up Systems for Cash Management

Business owners often handle their business finances in the same way that too many people handle their personal finances: They're so worried about making money that they forget to manage their money wisely.

David Jones, Business Banking Executive with First Horizon Bank, says that one of the first steps for business leaders to improve cash management is to set up effective systems and processes to get the most out of their company balance sheet.

“Lots of times, with small business owners, there's too much focus on their income statement and not enough on their balance sheet.”
- David Jones

Business Banking Executive with First Horizon Bank

"They're not focused enough on how to leverage their balance sheet to get paid faster or to hold on to their money longer," Jones says. "From a process and strategy perspective, we want to help customers pay attention to that. Often, with cash management, there is some low hanging fruit, some little things that go underappreciated and underserved."

Emily Gotcher, Treasury Management Sales Officer with First Horizon Bank, says that her team works with businesses to identify opportunities to streamline and systematize their processes for even seemingly small things like cashing checks. "Instead of taking checks to the bank for deposit, we help them get set up with Remote Deposit Capture, where, basically, they get a scanner in their office that connects to the bank via the online banking portal," Gotcher says.

"We try to take a step back and take a holistic look at their business, look at their balance sheet and cash flow cycle," says Gotcher, "to see where improvements can be made, and to educate the customer on where they can prolong their days payable or shorten their days outstanding receivables."

2. Automate Cash Management Where Possible

For business owners, time is money. But, unfortunately, many businesses are still handling their cash management practices with time-consuming manual methods that are slow and inaccurate.

"Lots of small to midsized businesses are still doing things manually, such as reconciliation, that could be done more easily with automated systems and online tools," Gotcher says. "They might not be aware of — or aren't sure how to get started with — automated methods, such as integrating their bank accounts with QuickBooks, and getting downloads of bank statements and past transactions. We can help these business owners understand their options for how to save time and money."

"In the days of online bill pay and mobile payment apps, it's often surprising to see how many businesses are still writing lots of checks every month," Gotcher says. "For example, a typical business that we work with might have 200 vendors to pay each month, and they might have a two- or three-tier approval process for each check that goes out. If they make their process more automated, our system would let them do ACH payments or set up a purchasing card program for the business."

With a purchasing card program, depending on the business's size, payment needs, and preferences, businesses can have their own small business credit cards with authorized users who can make purchases and payments for the business. Using cards instead of checks can help businesses earn credit card rewards, save time and money, and benefit from "float" — the extra cash flow grace period between the day a purchase is made and the day the credit card balance is due each month.

"Small business purchasing cards are the fastest growing payment method, mainly because it's the only payment method that has float assigned to it," Gotcher says. "Twenty years ago, if you wrote a check, there might be a couple weeks of float; nowadays, a check might only have two to four days of float before the payee cashes the check. With a purchasing card, you can get up to 55 days of float, especially if a small business is utilizing a line of credit."

3. Receive Payments Faster

Another element of cash management is getting paid faster. This means a business may have to adjust the way it collects payments from customers.

"Sometimes we'll work with a business client that is more traditional with the way they do billing and collect payments," Jones says. "For example, let's say you run a landscaping company or pest control business, and you have service reps who go to the customers' homes to do the work. Companies like this can often benefit from new ideas and different solutions for how to accept credit card payments on the spot. They can then give their landscaper crews or pest control technicians the ability to accept credit cards at the point of service. This helps the company get paid faster, without waiting for checks to arrive weeks later."

4. Put Your Checks in a Lockbox

For payments that still need to arrive via mail in the form of paper checks, businesses can use a bank lockbox service. With lockbox service, the business's check payments will typically be deposited faster than they would if the checks arrived at the business's mailing address; it's like outsourcing your check-cashing process to your bank.

“With our lockbox service, the small to midsized business gets to take the check- processing task off of their to-do list.”
- Emily Gotcher

Treasury Management Sales Officer with First Horizon Bank

"Instead of a staff member at the business collecting the checks at work, the checks go to First Horizon Bank at a PO Box with a specialized ZIP code, so it's faster for the checks to arrive. The bank collects mail from the lockbox each day, we process the checks each day, and the customer sees what gets deposited each day," Gotcher says.

Not only does a lockbox service typically result in faster payment times and better cash flow for the client, but also it reduces workload for the client. "Using a lockbox service is great, not just for getting paid faster, but maybe also the business will find that they had some built-in labor costs that no longer have to be dedicated to these manual payment processing functions," Jones says. "Lots of small things add up to big results."

What are your business's strengths and weaknesses when it comes to cash management?

Talk with your banking professional about the overall picture of your cash management systems, processes, needs, and opportunities. You may be surprised at how many seemingly small changes in how you take payments, pay your bills, and manage cash can add up to a big ROI for your business.

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