The following is an opinion article written by Patricia Smith, vice president and business development officer of InsurBanc, a division of Connecticut Community Bank.
Let’s face it, cash management is not something that agency principals get very excited about. Chances are your agency has put cash management on autopilot, relying on outdated programs that aren’t taking advantage of the products and technology available today. That could be a costly mistake.
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Here are five questions you should be asking yourself:
1. Do I have too much cash on hand?
Cash that’s idle is cash that’s not working for you. The right cash-management program will give you the flexibility to pay your bills on time — and invest for the future. Zero balance accounts (ZBA) and sweep accounts are two ways of doing that. With a ZBA, you keep a balance near zero in your checking account by automatically transferring funds to investment accounts. A sweep account is similar. It links your checking to a money market or stock fund and transfers funds when the balance reaches a pre-set target. Your goal should be to balance what you need to run your agency with what you can safely invest.
2. Am I efficiently managing my money through technology?
Here are two technologies that you definitely should be using: online banking and remote deposit capture (RDC). Online banking allows you to pay bills electronically and automate recurring expenses. With RDC, you can quickly scan and deposit checks from your own office. There is no need to drive to the bank. Automated Clearing House (ACH) transactions are another technology that’s well worth exploring. ACH lowers transaction costs compared to checks and credit cards, and it provides faster processing times.
3. Am I prepared for higher interest rates?
Interest rates have been low for so long that agencies have forgotten how to manage their borrowing costs and maximize their earnings. The historic average for the prime rate is 7%, which means we can expect to see a steady increase in rates. Make sure you have a strategy for navigating a rising rate environment.
4. Do I understand the connection between cash management and agency values?
Cash management facilitates growth and makes your agency more valuable when it’s time to sell. As agency principals approach retirement, they often discover that they should have invested in technology to enhance their revenue, reduce expenses and improve efficiencies. A good cash-management plan can help you do that.
5. Is my bank working for me?
When’s the last time you met with your banker and talked about what you get out of the relationship? Does your bank understand your unique cash-flow needs? What is it doing to help you manage your cash and expenses, increase your yields? If the answer is “nothing,” maybe you need a new bank.
Whatever your goals and financial needs are, there is a cash-management plan for you. Take the time to develop a strategy, and talk it over with your banker.
The preceding was an opinion article written by Patricia Smith, vice president and business development officer of InsurBanc, a division of Connecticut Community Bank. The views expressed within the article are not necessarily reflective of those of Insurance Business.
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