Filed Under:Risk Management, Loss Control

Managing the Agency Journey

Cash management strategies vary at each stage of an agency's "life," but using banking technology effectively can help.

Effectively managing cash flow through all stages of an insurance agency's life cycle is key to financial success.
Effectively managing cash flow through all stages of an insurance agency's life cycle is key to financial success.

Starting an insurance agency and then growing it to the point at which you can reap the benefits of your hard work in your retirement years is a journey.

Your success as a principal depends on your ability to build value in your agency from day one. Agency owners especially need to review and understand banking services and the technology available to smoothly navigate the stages of their journey.

Ask yourself: What stage is my agency in, and how will I get to the next stage?

The beginning

Fledgling independent agencies are faced with big challenges
while working toward profitability and improved cash flow. During this beginning stage, time is often consumed by inefficiencies and time-wasting activities. Good cash management solutions can save valuable time.

  • Remote Deposit Capture (RDC) can reduce transportation time and unrealized expenses, allowing you to concentrate on more efficient activities that generate revenue and reduce costs. The technology lets you scan and deposit checks electronically, so you can do your banking without ever leaving your office. Agencies can use RDC to consolidate funds from multiple remote locations into one financial institution. RDC also helps with accelerated check-clearing and improved funds availability, which improves cash flow and working capital.

  • Online banking is another great solution. Many banks have revolutionized brick-and-mortar banking by making it greener, faster and more convenient. Online banking makes it easier for the independent agent to pay bills electronically and set up recurring payments with improved efficiency.

Growth stage

At this point many agency owners are faced with managing increasing levels of revenue, attending to customers, dealing with competition and hiring a workforce. You may be expanding into new markets and experiencing growth in cash flow to cover ongoing expenses.

Managing accounts payable and accounts receivable is the lifeblood of an agency's business, but it's a time-intensive process. An Automated Clearing House (ACH) module, offered through cash-management systems, is a smart technology choice for three reasons:

  • ACH offers lower transaction costs compared to checks or credit cards (including printing, payment initiation, authorization, signing, mailing costs and time spent on fraud prevention). With ACH transactions, funds are transferred between bank accounts through a clearinghouse, keeping the transaction cost low.

  • Settlement time for an ACH transaction provides faster processing times, including next-day, and sometimes same-day, processing. You can expect improved workflow efficiency and flexibility with payments and quicker access to cash.

  • ACH makes money transfers simple and convenient. Agencies have the opportunity to set up recurring billing in the most cost-effective way by saving money on transaction fees. Many agencies use ACH for payroll, commission payments, premium payments and vendor payments.

The more financial transactions an agency experiences during its growth stage, the more transaction fees there are, and profitability and value decline. Lower transaction costs, faster processing times and convenience make this cash-management tool the preferred solution.

Related: Here are 3 questions agents ask their lenders

Expansion stage

During this stage, your staff is in place and your agency has established its presence in the market. You’re still growing, but you can now capitalize on this stability by expanding into new markets or acquiring other agencies. In addition, agencies in this stage experience rapid growth in revenue and cash flow. This makes it challenging to manage funds efficiently.

  • A Zero Balance Account (ZBA) is a checking account in which a balance of zero is maintained by automatically transferring funds from a master account in an amount only large enough to cover checks presented. This technology solution simplifies the management of multiple business checking accounts and the need for manual transfers between accounts. A ZBA can eliminate excess balances in separate accounts and maintain greater control over disbursements.
  • As an agency expands, it must manage its cash flow carefully so that it is well capitalized and has the means to acquire other agencies or expand into new markets. No dollar should be sitting idle at any given time. A sweep account links a commercial checking account with an investment account, such as a money market account or a stock fund. It automatically keeps the checking account balance at a preset target level by transferring funds to or from the investment account as needed. This allows the agency to earn higher returns on cash that might otherwise languish in commercial checking accounts. Most agency owners don't have the time or capital to reap the benefits of more profitable investments until they’re in the mature stage of their business lifecycle, which is why sweep accounts make a lot of sense.

Consider how a cash-management program and the latest in banking technology can help you at each stage in your agency journey. Add value to your agency, and enjoy the fruits of your labor when you’re ready to retire!

Related: How to build a 7-figure virtual insurance agency with pay-per-click campaigns

Patricia Smith is vice president and business development officer of InsurBanc, a division of Connecticut Community Bank, N.A. She can be reached at or 866.467.2262.


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