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Is your Cash Working for You?

September 14, 2020

The low interest rate environment that currently exists in the United States is a double-edged sword. On one side, it’s an opportunity for businesses to borrow money at a low interest rate making it easier to expand, purchase equipment or invest in new income earning assets. But, businesses with a low leverage (i.e. few loans) or strong cash liquidity are penalized with little or no interest earned on the deposits they keep in bank accounts. The good news is there are opportunities for business owners to maximize earnings on their cash. Ephrata National Bank has compiled a list of 6 opportunities that could result in your money working harder for you.

  1. Offset Interest Paid on Line of Credit Balances. A frustration among businesses we work with is the necessity of keeping money in a non-interest checking account in order to maintain liquidity and pay bills. A potential solution would be taking advantage of a sweep feature. This solution automatically moves excess funds from your checking account to your operating line of credit lowering the balance and reducing interest expense. When checks are presented, the system moves funds from the line back to your checking to cover the amount of the check. This allows you to take advantage of “float”, which is the time it takes for the check to be received, deposited and presented to your bank. As an example, an average float of $10,000 lowering line balances with a rate of 4.75% would yield $475 per year of interest saved. It is important to understand that these types of sweep features may come with a fee, but could result in savings of not only money but your valuable time.
  2.  Sweep to an Interest Earning Account. If your business does not have a balance on an operating line, a similar sweep feature can utilize your company’s float by moving excess funds to an interest earning account. If your company’s cash flow is seasonal, a combination sweep can be set up linking checking to both an operating line of credit and an interest earning account.
  3.  Decrease Account Receivable Days. An effective method of increasing your average float is to decrease the number of days outstanding when collecting accounts receivables. Receiving checks from your customers is both costly and slow, and there are faster options. Working with your financial institution, you can develop a platform to utilize the Automated Clearing House (ACH) to collect funds electronically from your customers. With authorization from them, you can deduct funds via ACH from their account on a regular or repetitive basis per terms on which you both agree. This option is faster and provides the ability for improved cash flow forecasting. In addition, payments can be made via ACH reducing the administrative burden and cost for you to make payments to your suppliers.
  4.  Coordinate company purchases. Reimbursing employees for purchases they make on behalf of the business comes with both significant outlays of time and expense. This process can be streamlined by providing employees with a company credit card. The result is one monthly payment for all expenses incurred on the cards rather than multiple reimbursement payments. Cards can be provided to designated employees and controlled with individual spending limits. Agribusiness owners have the ability to view purchases online and adjust limits, which provides oversight and allows you to see when and where money is being spent. As a bonus, many credit cards provide incentives, rewards or cash back.
  5.  Don’t Sleep on Merchant Card Services Fees. Often business owners sign up for a merchant card service (a service that enables receiving credit card payments) according to the expected needs of their business at the time. Of course this makes total sense. With numerous programs to choose from, how else would you do it? But equally important is reviewing your program periodically to see if your original expectations were correct. Are you receiving as many credit card payments as you expected? Is the average transaction amount higher or lower than you anticipated? A little known fact is that merchant card services and associated fees can be customized according to your business needs. A business receiving many small payments may be better suited paying a higher percentage of the transaction but a lower fixed fee per transaction. Businesses receiving a few large credit card payments may save money paying a lower percentage of the transaction but a higher fixed transaction fee. It’s understandable that you may be reluctant to upset something that is working, but changing the fee structure to meet your current situation could save thousands of dollars. It is recommended that a company review their merchant services program every 3 years.
  6.  Reduce your fraud risk. The number of fraud schemes perpetrated against businesses continues to grow. Although cybercrime and data breaches get the most attention, criminals continue to perpetrate check and ACH fraud. Implementing a proactive focus on fraud prevention can save companies from potential loss. ENB recommends these 5 Simple Tips to Protect Your Business Checking Account.

Although these may seem like small steps, together they can add up to significant savings that can enhance the profitability of your business. The key is getting started, and if you don’t know how, start by talking to a credible financial partner.

If you’d like ENB to help, call us at (717) 733-4181.