Online cash management provides tool for business

by John Qua

for the Business Journal

Online cash management for small businesses is in its infancy, but demand is growing as evolving technology increases its convenience and cost-effectiveness.

According to a survey conducted by PSI Global, a financial services marketing firm, 71 percent of small businesses used computers for financial functions in 1997, up from 62 percent in 1996.

Of those companies, only 8 percent currently had online cash-management services, but more than a third (35 percent) expressed an interest in using their computer to access balance information and track banking activities.

The convenience of online cash management is compelling. Like most business owners, you may need information about your accounts between monthly statements. Having updated information can help you make critical business and investment decisions.

Without online access, obtaining this information can be cumbersome and time-consuming. With an online system, you can access information from your own computer any time you need it.

Decision-making tool. Take a look at some of the circumstances in which online account access could help you make good business decisions:

?You want to make a major purchase, but need to wait until funds from a large deposit are available. Do you know when the check reached your account and cleared?

?The new computer system you need is on sale. Do you have enough in available balances on your credit line to buy now at the sale price?

?Your financial consultant recommends investing your working capital for greater return. Do you have the funds to act on this recommendation?

?You want to maximize your return on idle cash. Do you have money invested in money market funds that could instead be allocated to longer-term investments with the potential for higher yields?

?An employee-benefits management firm shows you performance figures for the retirement plan assets under their management. How do returns in your retirement-plan portfolio compare? Should you consider switching?

?Your company's divisions need separate accounting, but you don't want a paperwork nightmare. How can you accomplish this?

Valuable services. Some providers offer additional services that can expand the usefulness of an online system. For example, electronic funds transfer allows you to move funds between accounts in the same or different financial institutions. Using electronic funds transfer, you could:

?Streamline the financial management of multiple locations. If you have a retail or service business with multiple locations or are a property-management business with far-flung properties, you may need to consolidate funds deposited in local accounts into your central account for disbursement or investment. Your central account can be used to pay mortgages, rents, payroll or vendors.

?Allocate funds. Some businesses maintain multiple accounts at their financial institution to separate funds set aside for different purposes, such as payroll, bill paying, capital improvements, retirement benefits and long-term investment. You can use a combination of multiple accounts and electronic funds transfer to put funds into the right account at the right time.

?Purchase securities. Electronic funds transfer is an efficient way to move funds for investing, since it eliminates check-clearing time and wire fees.

?Pay bills. Electronic bill payment is another valuable online capability. Making electronic payments can be more efficient than manual bill payment. You don't spend time writing checks by hand, manually balancing your checkbook and mailing bills. If you travel, you can make sure that your bills are paid on time, no matter where you are.

Shopping for a service. When you're looking for an online financial management service, shop around for one that meets all your needs.

Does the system you're considering offer access to all of the account information you might need? Does it cover checking, borrowing, credit or debit card and investment activity? Does it offer transactional capabilities such as electronic funds transfer and electronic bill payment? Does it fit easily into your budget and is it easy to use?

Two types of online banking or cash management software are generally available. Stand-alone proprietary software is resident on a client's computer, while newer online services use the Internet.

Web-based services make use of an already popular communication pipeline currently about six in 10 (57 percent) computer users have access to the Internet, according to a Merrill Lynch survey, while the number of small businesses with Internet access doubled in the past year.

Today, a financial institution can provide online services to its clients directly from its Internet site. Another significant benefit is cost savings. Generally, a financial institution's costs are lower for Internet-based service, allowing it to charge clients less.

A valuable tool. An online service can be a valuable tool for day-to-day cash management. It can also play a significant role in long-term planning and major decision making by facilitating collaboration between you and your financial advisor.

Information is the critical base for all good business decisions. When you and your advisor have the right information at your fingertips, communication and the process of developing effective strategies is enhanced.

(John Qua is senior vice president and director of business financial services for Merrill Lynch.)

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You can use a combination of multiple accounts and electronic funds transfer to put funds into the right account at the right time.[[In-content Ad]]