Even Small Businesses Can Enjoy Big Treasury Management Tools

Treasury management products and services can help any small business operate with big business efficiency.  These tools help ensure that their money works for them every step of the way, speeding up the collection of accounts receivable on the receiving end, and improving the timing of payments to vendors on the disbursement end.  As a result, businesses are able to gain payment sooner and hold on to their money longer.

As recently as 15 years ago, treasury management services offered by banks were reserved for large corporations, and were never marketed to small businesses.  But that's changed dramatically.  Technological advances and growing competition among banks have helped make services like lockboxes and automated clearinghouse payments an option for both small and large businesses.

Lockboxes are collection systems in which a bank or a third party receives, processes and deposits a company's receivables.  Automated clearinghouse (ACH) payments work like electronic checks through a domestic electronic funds transfer system.  Both can be set up in minutes, but small businesses may require considerably more time to notify vendors and clients of their new systems.

Although lockboxes are among the most valuable cash management tools, some small businesses still have reservations about using them, said John Prosia, executive vice-president of Oak Brook's Leaders Bank. "Twenty-five years ago, when you asked customers to send payments to a lockbox [at a bank], that meant your company was in trouble," Prosia said.  "But that's absolutely no longer the case."  

Lockboxes offer small businesses several advantages, Prosia added.  One benefit is that it allows companies to speed up the collection and deposit of receivables.  The bank handles receivables for the business, and communicates by phone, fax or Internet to let the business know the money has been received and deposited.

Another benefit of lockboxes is that they eliminate the potential for embezzlement by employees.  Because receivables are sent directly to the bank, there's no risk of employees depositing checks in their own accounts rather than those of the companies they work for.  "That should provide an extra level of comfort to the business owner," Prosia said. 

To obtain a lockbox, a small business needs only contact its bank and sign an agreement specifying the expectations of both bank and business.  The lockbox can be ready to begin accepting payments from clients the same day, said Elizabeth M. Snyder, senior vice-president and chief compliance officer for Leaders Bank.

ACH payments represent an equally valuable tool.  Through the use of electronic transmissions that move money from payer to payee and can be tracked by computer, ACH payments can be employed to optimize the collection of receivables and the outflow of payables.

"There are two advantages to ACH payments," Prosia said.  "First, the small business owner can pay his vendors this way, timing the payment to within one day of due date.  The second advantage is on the collection side.  He can have his customers use ACH payments to pay their payments directly to his bank.  He doesn't have to handle a check, and he can see on his computer that the payment has been received."

Just as important, using ACH payments costs no more than writing paper checks.  "It offers all the advantages of the electronic presentment, but without any additional costs," Prosia said.

As with lockboxes, choosing to take advantage of ACH payments requires signing an agreement with the bank.  If the small business has never used such a system before, Leaders Bank will provide a brief training session in how to use the system, which can be accessed by visiting the bank's Web site and using the menu to go to the ACH payment page.

Surprisingly, only a minor percentage of small businesses take advantage of lockboxes, ACH payments and the many other treasury management products available to help make their businesses function more efficiently.  Many businesspeople either don't understand them or don't believe they have the time to implement them.

And others simply refuse to abandon the old-fashioned preference for handling their money before depositing it in the bank.  "They're hesitant to give up control," Snyder said.  "But by failing to do so, they could be hindering their own future growth."