In United States banking, cash management, or treasury management, is a marketing term for certain services offered primarily to larger business customers. It may be used to describe all bank accounts (such as checking accounts) provided to businesses of a certain size, but it is more often used to describe specific services such as cash concentration, zero balance accounting, and automated clearing house facilities. Sometimes, private banking customers are given cash management services.
What is Cash Management?
Cash management is a broad term that covers a number of functions that help individuals and businesses process receipts and payments in an organized and efficient manner. Administering cash assets today often makes use of a number of automated support services offered by banks and other financial institutions. The range of cash management services range from simple checkbook balancing to investing cash in bonds and other types of securities to automated software that allows easy cash collection.
When it comes to cash collections, there are a few popular options today that can make the process of receiving payments from customers much easier. Automated clearing houses make it possible to transact a business to business cash transfer that deducts the payment from the customer account and deposits the funds in the vendor account. Generally, this service is available for a fee at local banks.
Lockbox services are also often used by businesses to speed up the Accounts Receivable process. Cash management by lockbox requires the establishment of a post office box for the client. The vendor uses this post office address as the remittance address on all invoices. As payments are received, the financial institution collects the payments, posts them to the operating account for the customer. The customer can usually access daily reports that can be downloaded and used for posting payments into the company Receivables.
Because of the increased incidence of check fraud, the concept of account reconcilement services has become a must for many companies. Essentially, an ARC will keep the checkbook for an operating account balanced at all times. As an additional level of protection, the ARC allows the client to upload a daily listing of checks that have been issued on the account. In the event a check is presented that is not included on the authorized lists, the bank will reject the check.
When it comes to investing cash, many banks offer the ability to transfer a fixed amount of funds into mutual funds or other investments as part of the overall cash management strategy. The automated debit allows the client to incrementally increase the value of the corporate investment portfolio without having to spend a great deal of time working through complicated investment strategies.
There are a number of cash management options offered by local banks. In some instances, the cost for the services can be costly. However, many businesses find that the savings in time coupled with the high degree of accuracy more than make up for the charges associated with cash management support services.
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