commercial banking Resource Center

As uncertainty around interest rates raises concerns for treasury organizations, the importance of maximizing payment efficiencies with the goal of improving working capital management has become more critical than ever. By freeing up “trapped” cash, treasury can reduce its reliance on interest and investment revenue and/or loans for daily operations, as well as for the pursuit of growth objectives.

More effective working capital management that relies on increased treasury efficiency and effective supply chain finance practices holds the promise of treasury operations that are less beholden to the fluctuations of today’s interest rate environment.

The financial supply chain offers treasury invaluable opportunities to increase efficiency and improve working capital management. Gaining critical insights into the financial supply chain can allow treasury to take advantage of opportunities to work with suppliers to maximize liquidity. This can be accomplished by examining payment terms contained in the contracts between the buyer and supplier. By lengthening payment terms, also known as average days paid outstanding (DPO), treasury can make significant liquidity gains.

Suppliers may also be open to providing a discount in exchange for faster payments than those already agreed to on the invoice. In such cases, Fifth Third Bank can help by providing treasury with robust tools to capture discounts and determine the most efficient method of payment. Offering suppliers earlier payments for discounted terms is ultimately a win-win for both sides.

Another area of opportunity for driving treasury efficiency is by eliminating cumbersome manual paper processes, such as check payments, purchase order acceptance and acknowledgement, shipping notifications, and invoices, and replacing them with highly efficient electronic solutions. In addition to critical cost and resource savings, electronification can also automate the process of matching the purchase order price to the invoice receipt, creating further accounts receivables (AR) proficiency.

Through a careful examination of accounts payable (AP) and AR processes, treasury can evaluate payments terms and determine the best mix of payment types to meet organizational goals. This can have profound results. One such example was the case of a local school district which was experiencing a teacher shortage. But without additional funding, adding new teachers was simply impossible. However, after working closely with Fifth Third Bank, the school was able to improve its payables processes, which created significant cost saving efficiencies. By unlocking working capital, the school was able to hire two additional teachers – and no new funds were required.

While interest rates most likely won’t change dramatically for the foreseeable future, it’s impossible to state with certainty what tomorrow will bring. That’s why it’s a good idea for treasury to be proactive, rather than reactive in their liquidity strategy. Fifth Third Bank can help businesses gain a clearer picture of what they are trying to achieve. This will allow you to be prepared no matter what happens with rates in the future.

We can help you increase the efficiency of your treasury operations, working with your organization to ensure you are taking advantage of the latest tools available to help improve your working capital management. Together, we can monitor your processes and find ways to put more of your organization’s cash to work for the business, reducing reliance on credit lines. With the right working capital management strategy in place, your business will have better access to the funds needed to fuel future growth without having to borrow.