The independent insurance agency system produced an estimated $289 billion of property-casualty premium in 2007. With so much cash passing through operating accounts at their banks, independent agencies have a tremendous opportunity to look at their operations from the point of view of optimizing cash management.
Since the credit crisis and economic slowdown hit the U.S. last year, consumers have looked anew at the fundamentals of the banking industry. Many now ask about bank financial ratings and investments, and rightly so.
But when independent agency owners ask about safety and strength, they also should take the initiative and ask for the bank's help in enhancing revenue, reducing expenses and improving efficiencies. Independent agencies can and should expect their banking products and services to help them add to the bottom line. Here are some things you can do to determine if you have the right banking partner:
Optimize the earnings credit and target balances. Independent agencies have cash flows unlike those of any other business. Unfortunately, many banks usually offer them the same accounts they offer to any other customer. A competitive earnings credit on the agency's operating account can effectively offset bank fees such as monthly services charges and item processing fees. But banks can save money on bank processing costs with one simple step with help from their bank: set a "target balance" on the main operating account. The target balance is determined based on the agency's cash-flow patterns over the course of a year. The goal of setting the target balance is to minimize fees and optimize the earnings credit on the operating account. After establishing a target balance, agencies can then seek to keep that balance on a regular basis, improving profitability by offsetting account fees.
Review investments at your bank. Agencies should be sure their bank offers investment products that allow the flexibility to access money based on individual cash-flow needs. Cash management tools that provide the liquidity and high investment returns desired by agencies are matching-maturity CDs (certificates of deposit) and CD ladders. Matching-maturity CDs allow you to match the maturity dates to financial priorities. CD ladders allow you to distribute money over different maturities and receive a higher, blended rate of return on investments. Agencies can use a sweep account to take advantage of float in their operating accounts. Such an account "sweeps" excess cash automatically into an investment account.
Check for new technology services. In the last economic downturn, the banking industry didn't have the services and technology it offers now. Online banking and remote deposit are tools that can significantly improve work-process efficiencies and cash flow. But many agencies aren't using them yet.
Web services now make "remote deposit" of check payments a reality for any agency, large or small. Remote deposit allows business customers to electronically submit checks for deposit without ever leaving their office. A desktop scanner captures the check data and "sends" the deposit to its bank account. That saves agency time, labor and fuel. It also eliminates the need to fill out deposit slips and make photocopies, since the remote deposit system retains an image of the check's front and back (and also saves the deposit data).
Agencies that use remote deposit have told us they like the flexibility it gives, since the agency is no longer tied to the bank's hours for making deposits and cash flow is improved with faster funds availability.
Some agency owners simply are not aware of what banking products/services can do for their business. Now is a good time to for agency leaders to make a difference for their businesses by reviewing banking products and services.
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