It’s February and tax time! Most individuals are either dreading the thought of filing their return as they owe money, or excited because they are anticipating a nice, big refund! For those receiving refunds, bankrate.com and CNN Money state that the majority of Americans pay down existing debt, save it, use it for necessities or splurge on vacations and big purchase items.
But, what do refunds mean for banks and credit unions? Will their customers keep that money in their account or withdraw it?
CetoLogic has found that customers withdraw it. However, tax season isn’t the only time financial institutions see peaks in cash flow. Other examples include the 1st of the month, payday, Christmas, ski season if a branch is located near the slopes, festivals, etc.
Calculating how much cash to keep on hand for each branch, ATM and vault is very challenging. Items that head tellers must consider are money suppliers, armored car schedules, bundle sizes, transit times, denomination mixes and adhering to cash limits.
With so many moving parts, there are 4 common mistakes made when managing cash.
1. Determining orders using last year’s cash ending totals or other static cash data. Most head tellers utilize historical cash data to decide cash order amounts from internal spreadsheets. An issue with this method is last year’s cash endings are not an accurate point of reference for current demand. CetoLogic’s research has found that denomination demand can fluctuate 20%-30% between years. Also, branches often forget about the money that is held in an onsite ATM, TCD, CDM or other device when interpreting the data. Then there is consideration of how the data is compiled, some institutions spend 8 hours a week compiling data and others spend no time at all. Often times, internal spreadsheets do not include denominational detail or the current cash period’s usage; leaving a lot of room for error.
2. Believing cash is ordered correctly because everyone stays under their limit. Banks and credit unions set cash limits for their branches, ATMs and vaults; but limits can be outdated or are security based. The difficulty using limits to gauge cash performance is they are typically not created by evaluating cash usage for the last week, 3 months, 6 months or a year. Also, the limits are usually only revisited every six months to a year.
3. Thinking interest rates are still low and I don’t have an investment opportunity for the excess cash. Interest rates have been low for many years and one can argue about when they actually will rise. However, the common truth is interest rate rises are on the horizon. Prepare your institution for the rate rise now. If you decide to wait until rates rise, your financial institution may end up being a year or two behind the competition. At the very least, create a plan now.
4. Looking only at the numbers. Many financial institutions are using antiquated processes for branch cash management and haven’t evaluated how much time is actually being spent on the process holistically. Review your branch cash management operations for efficiencies. Ask yourself: How much time is spent deciding on the cash order, performing dual control, submitting the order, etc.? Does a branch manager or ATM department have total control over cash ordering or have you considered centralization? Even when a financial institution centralizes its branch cash management process, there may still be antiquated processes hidden within such as faxing the cash orders to another department. If money is ordered to a corporate credit union, bank or the Fed, how much manual data entry is occurring and could it be done faster? Is the armored car seen too many times or not enough?
At the end of the day, branch cash management takes time and lots of consideration. Therefore, take the time to review your process to find non-earning assets and inefficient processes. Remember to really look at how data is being interpreted by staff, don’t assume cash limits will do the work of controlling cash, don’t ignore cash levels because interest rates are still low and create an ROI that includes operational efficiencies and time savings. Correct common branch cash management mistakes now!