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Creating working capital and cash flow efficiencies: liquidity attainable with cash management strategies.

Businesses in Alaska and throughout America are facing challenging times. With a weakened economy and limited resources, companies--regardless of size and industry--need to ensure they are maintaining positive cash flow and liquidity in today's recessionary environment.

By employing specific cash management strategies focused on optimizing receivables and liquidity, a business can maximize its availability of working capital, even in these tough times. Essentially, you need to make sure you are in control of your payments.

Technology is also a tool that can be utilized to improve overall efficiency and cut costs. For example, Alutiiq LLC, a subsidiary of Afognak Native Corp., has used remote deposit checks online services to save the company both time and money. Yet, technology is not a replacement for a back-to-basics approach to cash management, which is the foundation for an effective working capital strategy.


The first step for businesses is to develop a plan to optimize cash flow. According to a 2007 study by the Association of Financial Professionals, more than two-thirds of the respondents considered effective cash forecasting to be the greatest challenge to optimizing cash and short-term equivalent investments.

There are two major barriers to effective cash forecasting. First, cash forecasting involves input from many different individuals, causing the models to become unmanageable. Second, basic spreadsheets are not a strong tool for monitoring data input and subsequent amendments to that data. Being able to access timely and accurate information is essential to effective forecasting. Banks and vendors continue to develop online tools to improve cash flow forecasting, which remains an evolving process.

By working closely with your banking partner, you can overcome these challenges and implement cash forecasting that will allow your business to optimize its cash flow. Specific cash flow areas to consider include reduce days sales outstanding, optimize days payable outstanding, minimize collection float and optimize cash concentration. Your banking partner will be able to select solutions best suited for your business' needs.


Forecasting with certainty will fundamentally inform the way you think about nearly every other aspect of your working capital process.



When taking a closer look at your receivables process, it is critical that you first ask yourself: Am I doing everything I can to get cash into the business as quickly as possible? The answer to this question will help you determine the best course of action for your business. Items to consider include offering customers incentives to pay quicker, acceptance of card payments, new ways to process paper and reviewing the manner in which your business accepts payments.


Liquidity solutions also present opportunities for businesses to maximize cash flow. For businesses looking to effectively manage short-term cash, liquidity solutions--earnings credit rate (ECR), sweeps, savings accounts and term investment vehicles--are strong options.

Companies can also increase returns by minimizing or offsetting banking fees. To do this, organizations should consider a managed ECR as a component of a balanced compensation program. ECR allows companies to offset some banking fees by maintaining a target balance on their accounts.

Another option is the utilization of sweep accounts. Sweep accounts are designed to invest the excess money from an account once all payments have been made, enhancing a company's earnings potential. Sweep account investment options are available based on a company's needs. Some are designed for companies seeking maximum return on investment, and others are focused on providing maximum security.

Other liquidity options include money market deposit accounts, jumbo CDs, money market mutual funds and fixed-income securities. These term investment vehicles are structured to preserve principal, limit risk and provide additional sources of interest income.

In a time of turbulence, it is a return to the tried-and-true basics of cash management that are fundamental to success. Effective investment management requires balancing the fundamental principles of liquidity, return safety and security. By implementing processes and procedures tailored to specific needs, banks can help businesses weather this storm.


Managing credit efficiently is a cornerstone of your company's working capital strategy. If you are electing to use credit as a part of your financial strategy during this time, then it is crucial to maintain a strong balance sheet, which can help improve your business' access to credit. Balance sheet analysis will be a key component in a bank's evaluation of the sustainability of your business.

In addition, employing the previously mentioned cash flow forecasting tools will strengthen your credit position and the ability to secure working capital loans. Lenders view well-tailored, efficiently administered cash management processes as being indicative of a stable, capably managed organization with lower risk levels.

Cash management is about managing your time and making the most of the solutions that are available to you. It is important to think about each solution and how it will impact the bottom line of your business. Consider all options and then look ahead to the future to make the best decision. It is important to be cognizant to the fact that by working with your banking partner to implement the tried-and-true basics of cash management, cash forecasting and working capital solutions, liquidity is attainable.

Tammy Stewart is an assistant vice president and treasury relationship manager for KeyBank in Anchorage.
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Title Annotation:FINANCE
Comment:Creating working capital and cash flow efficiencies: liquidity attainable with cash management strategies.(FINANCE)
Author:Stewart, Tammy
Publication:Alaska Business Monthly
Date:Oct 1, 2009
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