FMS Best Practices: Cash Management
By Dennis Hoyt, Hoyt Treasury services
Cash management best practices enable retailers to efficiently and at a lower cost receive, control, and report on receipts; more quickly upstream those receipts to corporate; and maintain minimal amounts of cash on hand at the store. A retailer’s goal should be to remove or revise the processes and practices which hinder effective cash management.
Cash – Cash remains an important form of payment, having the highest share in terms of transactions and the third-highest in terms of dollar sales. Given the high labor costs and shrink risk involved with cash, important considerations are
· Setting policies for recycling store cash, to minimize armored car service.
· Reviewing cash back policies.
· Optimizing safe management in concert with store maximums.
· Accurate and concise Over/Short reporting
· Conducting either surprise or planned cash audits.
Checks – The cost of accepting checks includes the expenses associated with POS equipment and handling the transaction (bank, processor, cashier, accounting clerk, etc.). Checks as a form of payment is declining rapidly as younger generations have shifted to electronic and mobile payments. When upgrading POS equipment, consider designating check-free lanes to reduce the costs associated with check acceptance. And how likely is it that your older check writing customers will write a bad check? Maybe you should consider not paying extra to guarantee or verify those checks.
Electronic Payments – Credit Cards, Debit Cards, and Gift Cards – The fastest growing payment form also has the most challenges thanks to Data Security Standards, PCI compliance, card fraud, identity theft and the transition to EMV. It is important to ensure you have the best card processor to meet your needs, up-to-date equipment, and the best methods for processing and settling transactions.
To reduce the costs associated with this payment type, consider distributing a Request for Proposal (RFP) to 5-6 credit card processors every 3-5 years. Requesting a pricing/service proposal is the best way to ensure you have the latest technology and security measures, as well as the best pricing. The initial RFP process can take some time due to the need to gather and provide detailed information on processing hardware/software/methods, transaction volumes, security and other concerns, problems encountered, and potential changes. But after obtaining the proposals, you can more easily determine which processor will provide you the best service, taking into consideration pricing, conversion, security, customer service, etc.
Mobile Payments – If you haven’t already updated your POS equipment to accept mobile payments, consider investing in EMV/NFC terminals in the very near future. Mobile payments can be processed much more quickly than EMV cards and are the most secure form of payment.
Take it to the Bank – A retailer’s options for depositing cash involves either a trip to the bank or use of an armored carrier. Due to the security risks involved, an armored carrier service is recommended.
A cost/benefit analysis of armored carrier services will help identify the appropriate vendor and the optimum number of pick-ups per week. Once in place, it is important to monitor a carrier’s pickup and deposit times. Most carriers vary their daily pick-up timing for security purposes which may lead to unexplained late bank deposits. The carrier should be able to provide reports (likely for an additional charge) that will help you identify if the late deposit was caused by the store or by the carrier. You should only need to monitor this every year or so, but because store volumes and carrier pickup costs/timing may vary, it should be done individually for each store.
The cost/benefit of an armored carrier service should also be compared to the use of smartsafes, to determine which method provides the quickest deposit and lowest cost.
SmartSafes - These are basically ATM-like machines for the back office. SmartSafes can provide coin and currency at the beginning of the shift for each till. End of shift coin and currency is then fed back into the SmartSafe, with a receipt provided for the amount entered. Some banks provide provisional credit for the funds you have deposited in that safe while they are still at the store, which may lead to a reduction in the number of armored carrier pickups each week.
In addition to provisional credit on funds still at the store and the reduction of carrier pickups, SmartSafes can also provide major time savings. The elimination of most or all manual counting and improved accuracy in the preparation of deposits and reports can free cashiers, cash office personnel, and store management for other activities. If the time savings allows associates to punch out early or perform a task of equal or greater value, then you will have saved real dollars.
Banking – If you have credit facility, your lender is probably also your cash management bank – so bidding out that service (like the card RFP) may not be an option. But make it a win-win with your bank. Banks provide some very necessary services, but some are more necessary than others. And a few that may have been critical 10 years ago, are not now. You should meet with your cash management banker every year or two (a serious meeting, not just a lunch). Have them explain every service they are providing you, and the cost. Then ask them to come back to you with three things:
· Additional services they could provide – and how they will improve controls or save you money,
· Services they have been providing you that may no longer be needed, and
· Revised pricing to show how they can save you money on their other ongoing services.
You’ll get the best banking services for you, at a better price – and the bank keeps a happy customer.
Check Cashing – Retailers receive checks at point of sale and often provide a check cashing service for customers and employees. These third party checks should be scanned at the store and deposited electronically. The funds will be deposited more quickly and the time savings and reduction in bank and carrier fees should more than cover the costs of processing checks. Scan and deposit checks received at your corporate office in a similar fashion.
Are you cashing employee paychecks for your employees that are unbanked? It’s likely costing you store employee time and crowding out 3rd party (income-producing) check cashing service. Consider going to a paycard for those employees. With this, your unbanked employee now effectively has their own debit card for making purchases. And as a bonus, you can get out of the payroll check writing business!
And because you are cashing checks, you may be keeping far too much cash on hand. To reduce your excess cash, consider amount limits on checks cashed. Also consider a short-term cash forecast by day for a rolling 2 weeks. By inputting expected demand on a daily basis and adjusting it for peak times (e.g. 3rd party paydays), you can come up with an adequate forecast that will allow you to minimize excess cash held at the store, deposit more into your corporate bank account, and reduce bank debt.