A comprehensive cash management plan is vital to anybusiness.

For independent insurance agencies and brokerage firms, cashmanagement is unique — calling for a focused, strong cashmanagement system provided by the agency’s banking institution.

Most agencies would equate effective cash management with tasksperformed by a chief financial officer such as: analyzing theagency’s current situation, defining a cyclical pattern of cashflow and forecasting future cash flows. But agencies should expecttheir bank’s experience, products and services to contribute to theoverall plan.

The ultimate goal of a strong cash management system for everyinsurance agency should be to enhance revenues, reduce expenses andimprove efficiencies. When you accomplish this, you create valuefor your agency and add to the bottom line.

An efficient, properly managed cash management system usuallyconsists of three components.

1. Technology is front and center.

New technologies and solutions have made it possible for agenciesto adopt more accurate and reliable cash management strategies.Agencies are seeking customized solutions depending on the uniquecash management challenges that they face. The connectivity andconvenience must be matched with complete security that make surethe information about the agency’s cash policies and transactionsremain private and secure at all times.

An agency’s premium payments, carrier payables and receivablescan be managed largely by automated solutions. These technologyimprovements allow an opportunity to deploy excess cash intoshort-term investments. Technology that integrates with a good cashmanagement system will eliminate the manual processing, and reducethe time spent by agency employees on these transactions. Theinformation is then compiled into effective reports for use bymanagement.

Be sure the system your bank provides includes good clientsupport, appropriate levels of security, controls and reliableequipment. Inadequacies in any of these areas can be costly to anagency in the long run.

Advances in technology allow multiple users to sign on withdesignated roles, preset by the agency principal. Delegating rolesincreases the agency’s efficiency by setting up the agency tohandle funds in the most-expeditious manner. Time is money. Thefaster the agency funds are handled, the more efficient the agencybecomes.

2. Know how to strike the right balance.

This is of equal importance to technology. There is a right balancebetween having too much cash on hand, out of precaution, and havingan inadequate supply.

If an agency has too much cash, it is missing out onopportunities to invest the cash and generate additional earnings.On the other hand, if it doesn’t have an adequate supply of cash,it will have to borrow money, and pay interest or sell off itsliquid investments to generate the cash it needs. Successful cashmanagement involves not only avoiding insolvency, but alsoselecting appropriate short-term investment vehicles, andincreasing cash on hand to improve the agency’s cash position andprofitability.

A strong cash management program will let you use idle cash thatmight otherwise stagnate in a checking account. It’s important thatyou consider a variety of investment products with flexible termsto accommodate your unique cash flow needs.

Products such as a sweep account or zero-balance checkingaccounts allow you to keep unused funds earning returns in avariety of investment accounts, while automatically sweeping fundsto and/or from your operating accounts when needed. These productsallow you to manage everyday transactions while supporting yourlong and short-term investment goals.

3. Review your fee structure on your bankingrelationship at least annually.

Earnings credit rates and target balance requirements are importantto your bottom line. The earnings credit on your bank account canoffset the cost of deposit account services.

Charges such as monthly maintenance fees, checks paid and itemsdeposited can add up quickly and affect profitability. So youshould be discussing your agency’s cash flow patterns over thecourse of the year and make any necessary adjustments to set atarget balance at the right level.

Consult with your banker, discuss changes to your agency’s cashflow patterns and agency goals, and make adjustments that makesense based on your financial needs. Does this sound familiar?Independent agents and brokers take this same mindset when servingclients!

Related: 3 key strategies for growing your insuranceagency

Patricia Smith is vice president and businessdevelopment officer of InsurBanc, a Divisionof Connecticut Community Bank, N.A. She can bereached at [email protected] and(866) 467-2262.