Speaker 1:
As a bank that focuses on business, we work with business leaders all day, every day. We have a front row seat to what's working, and what has potential. The First Business Bank Podcast is dedicated to sharing insights to help you work better, smarter, and faster to achieve your goals. Let's get into the show.
Kevin Kane:
Welcome to The First Business Bank Podcast I'm Kevin Kane. And I'll be your host for today's episode. What is treasury management? To help explore this topic further, I have with me today, Kim Preston, Melissa Fellows, and Tom Dott. I'd like each of you to introduce yourselves to our listeners, Kim, let's start with you.
Kim Preston:
Hello, my name's Kim Preston and I'm senior vice president of treasury management and lead the sales group in our market.
Kevin Kane:
Thanks. Melissa?
Melissa Fellows:
Melissa Fellows, senior vice president treasury management, and also lead a treasury sales team for one of our markets.
Kevin Kane:
Great. And Tom, how about you? Thanks Kevin.
Tom Dott:
I'm Tom Dott. I'm a senior vice president of commercial banking.
Kevin Kane:
All right. Thank you all. Kim, to get our conversation going, I'll start with a question for you. Big picture, what is treasury management and why does it matter?
Kim Preston:
So put it in, I guess general terms as when I'm talking to prospective clients, it's basically the management of the daily cash and that's gone through four tranches, which is information reporting, liquidity management, it's accelerating your receivables, optimizing your payables, and then identifying mitigating fraud and risk. So all those four components in theory is you're getting your best use of your cash on a daily base.
Kevin Kane:
Melissa or Tom, would you add anything to what Kim just touched on?
Tom Dott:
I would just add, I mean, from a banker's perspective, I look at treasury management as the other side of the balance sheet, tend to be more on the asset side of things and how you're managing that from a day to day perspective, as opposed to debt.
Kevin Kane:
One of the things I was thinking about is, are there any particular companies, whether we're talking in terms of revenue size or industry sectors that would be more in need of treasury management services or that they should be paying attention to treasury management?
Melissa Fellows:
I would say, short answer to that question is no, it really pertains to companies of all sizes, generally larger companies. They have their own treasury department and they really have to leverage their treasury banking relationships just by nature of what they do. But we partner a lot with small businesses and tech companies and startups. And we find that we're more involved in those conversations on the treasury front, because they might not have a CFO or a controller. Their treasury resources are limited. And so really can leverage your bank partner to make sure that you're doing everything that you can in terms of technology, liquidity management. Because again, you might not have a dedicated full-time resource for that. And that spreads across again, all industries and types of companies.
Tom Dott:
Kevin, I would just add to that, another sector that we do a lot of work in and have added a lot values in the, not for profit world and particularly as relates to treasury. I mean, that's just so critical there to make sure that those assets and resources are protected and are being maximized whenever possible.
Kevin Kane:
Well, and I like that example too, Tom, because something else that we talk about from time to time I'm running a business, I don't really have a lot of excess liquidity or cash. And I think about things mainly in the context of, hey, I need to borrow money. I need to finance things. If that applies to my business, why should I be thinking about treasury management? Again why would that matter for me given that those attributes that I just described?
Tom Dott:
I'll jump on that one. I think, I mean, the way I look at it, it doesn't really matter whether you're borrowing or not. Everybody has those issues that they're dealing with. Everybody's got payables. Everybody has receivables. Everybody has potential to fraud exposure, whether you're borrowing or not. So it's applicable in every situation, whether you're borrowing or not. And that's an interesting perspective because I've had that conversation with a lot of people over the years who have asked me, as a banker, "Hey, Tom, in some cases I don't need to borrow, so why are you bothering we me with this?" And the fact of the matter is, it's mission critical and it's probably even more important to be paying attention to that because you've got a lot at risk there.
Kevin Kane:
Yeah. That's a great point. And it also makes me think about where we have situations and a client says, "Okay, I don't borrow, I've got a lot of liquidity. So as a bank, why the heck do you want to talk to me anyway?" Which is turning, I guess, from a different point of view. And I'd be interested to hear from any of you on what's the answer to that question from our point of view.
Melissa Fellows:
We have a lot of conversations around liquidity and it's a big piece of managing operating cash, time to cash. How are you utilizing those funds while they're in the bank? And that can have a significant dollar impact, especially maybe not necessarily in today's interest rate environment, but not that long ago, interest rates were north of a percent, close to that 2% range. And it'll be interesting as we look forward and with the change in rates and just making sure that you're having open conversations, I think to maximize what you're doing with your operating cash. Because again, it can have an impact in terms of tens of thousands of dollars in either interest earned or maybe interests saved.
Tom Dott:
I would like to explain it to people too, because that's an interesting question. And the reality of it is, I mean, I think part of the explanation is making sure people understand the basics of our business model. I mean, those deposits are our raw materials but for those, we don't make loans. And so that's the gas in our tank. And so it is incredibly important not only to us, but to any bank. And in particular with our unique business model, it's even more important to us, but it's raw material.
Kevin Kane:
Right.
Kim Preston:
That's something that I talk to clients a lot about is the deposits are so important to us because of our business model. We don't have the bricks and mortar of all the retail locations and that retail presence, which deposits are more plentiful. So deposits are definitely premium to us from a standpoint of us doing our business.
Kevin Kane:
Right. And then to points that the three of you have touched on a few moments ago and our ability to help with some advice and insights into liquidity, liquidity management. Melissa, you used a couple terms that I think are important that maybe we could expand on for a moment, which is the cash cycle or time to cash. So we'd love to hear from any of you about what those words mean and how, again, with treasury management, we can add some value to that aspect of running a business.
Melissa Fellows:
Yeah. So maybe elaborating a little bit more on, time to cash. So you want to collect your receivables as quickly and as efficiently as possible and then hold onto those dollars. And as long as you can, right? So it's really working with your banker, your treasury specialist to identify what is the most efficient way? What is the quickest way to collect those dollars? Is it a cheque. If I'm collecting a cheque, how am I getting it to the bank? And what is the availability of those dollars? Could you convert that to an electronic incoming ACH credit? Which is immediately available for usage, maybe it's something that you and your business look to control to take that payment process. So your vendor doesn't necessarily have to pay you.
Melissa Fellows:
You could help them with that. So I think, a number of ways that we work with clients to talk about ways to speed up, make that availability even quicker and more secure. I think of lockbox as well. And do you want cheques coming to your office? Do you have maybe one person that's processing cheques? Could those go to directly to the bank in a controlled, secure environment where every cheque that comes in, you know is getting deposited, that day, every hour on hour, for example. So there's a number of tools that banks can provide to help speed that up for a business.
Kevin Kane:
You've got a couple things that come to mind there. One is what if, and I suppose there are examples of this, but what if my bank doesn't really offer treasury management services, now what? Any thoughts there?
Kim Preston:
So super important from that standpoint and to piggyback on what Melissa was saying earlier. So our goal is not necessarily to eliminate a position or whatnot. We are trying to help that client be more efficient and using their staff for better things than just making deposits and things of that nature. So our goal is to help be more efficient and again, to maximize, collecting those receivables quicker, waiting to make the payables when applicable, so that they're maximizing on all aspects, both from a cash [inaudible 00:09:34] and a people standpoint.
Tom Dott:
Yeah. And I mean, the reality of it is, time is one of the most valuable commodities any of us have, and you've got to make the most of it. And a lot of what is done through treasury management is meant to maximize time, making more efficient and make the highest and best use of the time that you have. And, I think about things like even integrated payables where effectively you're using the bank to outsource a function that you're going to do every day anyway.
Tom Dott:
And what's the best way to do that. And what are the options? And I think you need to be working with somebody that recognizes that, has the capabilities, not only of the current products, but also maybe from the side of innovation and can be a little bit cutting edge into terms of what's changed out there. I mean, I think we all recognize that right now a hugely precious commodity is people, nobody can find them, right? So you've got to make the most of what you have. And in some cases that might mean thinking about outsourcing.
Kevin Kane:
Yeah. I appreciate those ideas. I mean, we do sometimes again, more in the context of, in a manufacturing facility, the production line, how do you automate, but this idea that there are opportunities to introduce automation into the office and the treasury function. And I think, as you are describing that, that's really what comes to mind and along that path as well, a lot has changed in treasury management or cash management over the last 10 or 15 years. And I'd welcome your thoughts on, if we move into today's environment, what are some of the current trends or issues that businesses are facing, where again, treasury management is a really important conversation for a business owner and an executive.
Kim Preston:
So maybe, I guess even last year is probably a key indicator of where things definitely changed a lot for businesses because of the shutdown and people weren't going into work and whatnot. So we found a lot of clients migrating to lockbox or remote deposit capture because they weren't having to physically send their staff into the office. Even online banking became even more prevalent from a standpoint of we still have those few clients that want to come in and talk to someone in the bank lobby or call, but given last year going online was a big push as well for clients.
Kim Preston:
So mobile banking, that's been a big change. And I think that continues to evolve even more on the business side. Consumer side's been there probably a little bit more frequent, or got to that more quickly than what the business side but the business side is migrated even more so I think this last year.
Melissa Fellows:
Yeah, I would agree. We track customer technology adaption quarter over quarter and we saw record increases and mobile usage outsourcing to lockbox. And really Tom mentioned integrated payables that really expedited the speed that we brought that to market because one of the things that we heard from our clients during the pandemic was our office is closed. And the only reason that we're going into the office is to deposit cheques, or to get cheques for deposit, or to write cheques. And so we had a solution on the deposit side as far as lockbox, but integrated payables, allowed clients to be able to have us issue those cheques for them.
Kevin Kane:
Right.
Tom Dott:
And to Kevin in this world of the internet of things and all things cyber, I mean the other thing that is continued to make it self known unfortunately, is fraud. And in more sophisticated forms of fraud and things like not that things that we necessarily help with things like ransomware, but cheque washing and email intercept and all those types of things, which are all things that, to a certain extent we can help with from a treasury standpoint as relates to putting cheques and balances in place. And even dual controls from an internal perspective. So I mean, electronic B2B stuff is great, but it doesn't come without its perils.
Kim Preston:
Yeah. To piggyback on that too, Tom, it's not a case of if you're going to have fraud or an actual fishing scheme or whatnot. It's when, and more and more people need to recognize that it's truly important to have those risk mitigating tools in place because it's fraud is it's not on the decline, it's on the rise, definitely.
Kevin Kane:
Yeah. And I agree. And I think we hear from clients, well, I've got a great IT capability or I've got advisors that are helping ensure that I've got the proper firewalls or any of the other technologies that protect or provide some protection with my system. But what the three of you are touching on really relates to, okay. That is absolutely important, but some of the older forms of fraud or social engineering, things that are really independent of the technology. And so how does your treasury management advisor, meaning your banker help address some of those risk issues, best practices, those kind of things. Any other thoughts on that particular topic?
Tom Dott:
I just go back to what you said before in terms of, so what if my bank doesn't offer treasury services? I mean, as a client, you don't know what you don't know. So if they don't offer it or maybe they offer it, but aren't talking to you about it, well then you're at risk. And so in some cases it's as much about awareness as it is about a solution because sometimes the solution can be driven by being aware of how it can happen and which leads to ways and opportunities for prevention, whether it be internal processes or putting some of the products and services in place that the bank offers.
Kevin Kane:
Terrific. And now, Tom, you made me think of something else here which is, there's this idea of the annual account review or relationship or treasury management review. And I'm a business owner doesn't seem like a whole lot has changed. So is it really worthwhile why the annual treasury review, how does that fit into things?
Kim Preston:
So that's something that we pride ourselves on to be proactive about that with our clients that, at a minimum, at least annually we're reaching out to do almost what I consider almost a health checkup, right? Just to check in, make sure, hey, maybe there's some new products that could be of benefit. Have you had any changes within your business, any changes with staffing bringing them up to speed on current trends and things that are going on? Fraud tends to be a very big discussion with many of the account reviews that we've done this year, annual reviews we've done. So it's time well spent. It's not a case where we're trying to go out and product push. I mean, we're truly trying to go out and be a resource and just identify things that could be a benefit to them. And it could be no changes, but at least we're checking in and having that conversation with them.
Tom Dott:
I think the reality of the situation for a lot out of this is, is that you have to be preemptive on some of this stuff. I mean, a lot of these fraud prevention tools and resources are the equivalent of what I would consider maybe even some type of financial insurance. And like all other insurance, I mean, really you can't buy insurance after health burns down. I mean, you got to be out ahead of this stuff. You can't go back and push do over. So, there again, it's about awareness and it's about the conversation. And you mentioned earlier, it's not a question of if, it's a question of when, and I can't tell you the number of times I've sat across the desk from people and had them say, "Well, we're not really concerned about fraud because we've never had it happen."
Kevin Kane:
Which, if I can maybe tie a number of themes together that we've been covering here and it has to do with this idea full circle, why does treasury management matter? We've touched upon a lot of different aspects of that. And I do recognize and realize that business owners, especially in the middle market, the smaller end of the middle market, they're pulled in a lot of different directions. And I can appreciate that at certain points. It may be, hey, I'm busy. I don't have a lot of time to spend talking about this topic, this particular aspect of things. What's the return on the investment for my time in that. And maybe some concluding thoughts on how we define some of these themes in a more economic point of view for a business owner.
Melissa Fellows:
I can start and we'll share an example. So recently had a conversation with what I would call a pretty credit intensive bank client. But didn't review or didn't have any conversations with treasury. And matter of fact, they worked with a bank that doesn't have treasury management. And so in a conversation with them and reviewing or evaluating their banking and our treasury conversation, we're able to uncover a number of things.
Melissa Fellows:
But one of the things that really resonated and had a large financial impact to this organization is they have large dollars spread out amongst a number of different accounts across various banks. They also have a large balance on their line of credit. And so by looking at potentially consolidating that and implementing a line of credit sweep, for example, where it's automated, there's no manual intervention. Just that one hour conversation really opened up their eyes to, wow, we could save tens of thousands of dollars annually, if not monthly by you maximizing what we have with our excess liquidity.
Tom Dott:
I think it's also a function of the age old dilemma of quantifying the value of someone's time. Because a lot of this really is, is that there are certainly those instances where you can monetize a lot of this, but a lot of it is how much time am I going to spend on this? If we get cheque fraud and now I've got the police and the FBI, and I've got to shut down my account and I got to open up a new one and I got to notify vendors and all these other types of things. All of a sudden the meter starts running pretty fast when it comes down to that. So some of this stuff is a little bit, [inaudible 00:20:11] I'll call it softer from a cost and value perspective. But is incredibly important to consider when you're having these conversations. It's the consequences.
Kevin Kane:
Yeah. And maybe that's a good way to wrap up our conversation for today. Because the last five minutes in particular, there are many other things that I think we can talk through in future podcasts that really dig deeper into some of these solutions, whether it's on the disbursement side, the collection side, protecting against fraud, quantifying some of those elements that can be quantified and identifying those aspects that are a little softer Tom, to your point. But still have implications for the efficiency of running a company, the return, bringing more to the bottom line, et cetera. And I also think that to the extent that interest rates are rising, some of the things that haven't necessarily been a focus in recent years in terms of working capital management, I think those are going to become back into view here before, I wrap up any final thoughts, Melissa, Kim or Tom?
Melissa Fellows:
Keep the lines of communication open. I think things are constantly changing in terms of technology, what we're seeing with fraud, it honestly it changes weekly. And rely on your banker to help you better understand what is going on in the banking industry. So you can focus your time on running your business.
Tom Dott:
And if they're not proactively talking to you ask, and if you're still not getting it, then-
Kim Preston:
Find someone new.
Tom Dott:
...Yeah, exactly. Exactly. Yeah.
Kevin Kane:
Call first business.
Tom Dott:
Yeah. Right.
Kevin Kane:
Terrific. Well, I want to thank our guests for participating in our conversation and sharing some insights and I'd like to thank anyone who's going to be in our audience for listening to our podcast. I mention that our view is that this is a very complex topic. There's lots of things to talk about, to build off of this initial discussion. So consider this the first in a series of podcasts on the topic of treasury management and in future episodes. I think we'll try to go into more detail about some specific solutions that might be used in your business again to optimize working capital management, improve efficiency and protect against fraud. And in the meantime, be sure to visit us @firstbusiness.bank to check out other resources we offer to businesses, business owners and leaders, and we invite you to experience the advantage of First Business Bank. Thank you.
Speaker 1:
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