Four tips for financial stability King and her treasury services team offered a range of suggestions for businesses to consider as they reevaluate their needs. Focus on safety first. While bank failures are rare, the high-profile collapse of several regional banks last spring served as a reminder for businesses to ensure their assets are secure. Working with banks that are FDIC-insured is a start, but clients should also conduct due diligence on their bank’s loan, deposit and revenue diversity, and check their financial health ratings issued by third parties such as Moody’s and Standard & Poor’s. Additionally, treasury managers can take advantage of innovative banking products, such as Insured Cash Sweep (ICS) accounts, designed to maximize insurance coverage for deposits larger than the $250,000 FDIC limit. Maximize working capital. In times of uncertainty (and especially when interest rates are high), companies want to increase cash flow, which provides a safety net to deal with potential adversities while earning a return on money in reserve. For these reasons, companies should prioritize the need to collect on accounts receivable quickly and optimize their payables process. As an example of the latter, King mentioned that some companies use their corporate card program strategically to pay vendors, making more efficient use of working capital for another month until the credit card bill comes due. Reevaluate debt. With higher interest rates, borrowing is more expensive and credit may be harder to access. Companies that have traditionally operated as net borrowers should closely examine their future needs and explore alternative sources of funding to avoid becoming overleveraged. Concurrently, an emphasis on increasing working capital, as mentioned earlier, can help to service existing debt.
Reposition cash reserves. When interest rates were low, a common strategy involved leaving cash reserves in non-interest-bearing accounts to maximize earnings credits and offset treasury service fees from the bank. But in today’s high-rate environment, companies with excess cash are achieving handsome yields from money market accounts and other short-term instruments. Some banks now offer hybrid accounts that offer a combination of earnings credits and interest, which can be a best-of-both-worlds solution. Amid the shifting sands of the economy, every company faces its own unique challenges to find and maintain a solid financial footing. That is why it’s important for businesses to have good relationships with their banking partners, King said. “As the economy evolves, a proactive, consultative banking team can help companies understand their financial needs, improve processes, and take advantage of the right mix of products and services,” she said. With a more comprehensive approach to treasury management, companies can shore up their financial security today and weather whatever economic storm comes next.
Marcia King, Denver treasury team. (Photo: BOK Financial)
31 The Acumen
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