By David Austin
Effectively managing cash is not so different conceptually than managing any other type of inventory, so it makes sense that credit unions implement standard inventory management practices into their cash management processes. In order to do this, however, executives must dispel some of the common myths surrounding cash management.
Myth 1: Head tellers always know how much cash their branch needs.
The reality is that head tellers use cash limits, last year’s usage, their instincts or their best guess versus statistical analytics when it comes to ordering and managing cash. These practices cause cash to be managed up to the limits, rather than to actual need based on member demand and patterns of utilization. Typically, senior management only revisits limits once a year and last year’s usage by itself simply cannot predict future demand. Changes in member base, technological improvements or the surrounding community impact the branch’s cash needs.
Myth 2: Cash devices always need to be filled to capacity.
Statistics show that branch cash levels are 30% higher than demand where cash devices are filled to capacity. Why? This hoarding of excess cash is usually due to a lack of understanding of the demand on the device, as well as human nature to insure that these devices never run out. While filling these devices to capacity may be the easiest option for branch personnel, it is not always in the best interest of the institution as keeping these funds idle represents a missed opportunity for increasing returns.
Myth 3: Lowering cash limits will reduce inventory, therefore improving efficiencies.
Lowering the credit union’s branch cash limits may result in an increase in armored car trip costs, and in a low interest rate environment like today, that may not be the best solution. Rather than lower limits to decrease idle branch inventory, the key to improving efficiencies may be to carry higher cash levels on certain days based on the frequency of the armored car deliveries. Institutions may find that a decrease in the cost and frequency of armored car deliveries is more cost beneficial than decreasing inventory levels.
Myth 4: Managing cash is the same process as it’s always been.
There is a common misconception that there are no new approaches to cash management, but as the branch environment transforms so do the roles and responsibilities of today’s tellers. Credit unions today are fully immersed in a sales culture and have the advantage of sophisticated technologies and the abundance of affordable analytics to get a better grip on their cash management. Why not leverage technology to manage cash centrally and automate orders to money suppliers and armored cars? What once took a branch 45 minutes a week can be accomplished by one individual five minutes a week.
As the economy continues to grow, credit unions that are proactive in analyzing and repositioning their cash practices will be better prepared to anticipate member needs, uncover new opportunities for revenue, free up resources and most importantly, redirect their focus on providing excellent member service.
David Austin is the vice president of Atlanta-based CetoLogic, a provider of software and analytics solutions. For more information: www.cetologic.com.