Banking Tools to Help Manage Cash Flow

Managing Cash Flow ConstructionKevin Gallagher, CFO of Head Inc., says there are several banking tools that can help construction companies improve cash flow management. The tools can help ensure that cash is available when and where they need it, while also helping ensure that both inflows and outflows happen more seamlessly with less risk.

Here are six types of bank accounts to consider:

  • Concentration account. This is the main banking account where most deposits and checking go, with the exception of payroll in most cases.
  • Controlled disbursement account. Gallagher likes this type of account because the bank alerts him in the morning as to which checks (and dollars) will be clearing that day.
  • Zero balance account. Gallagher has started using this type of account more frequently. Any remaining balance is pulled out at day’s end and put into the concentration account. Similarly, when checks are cleared on this account, money is pulled in from the concentration account to restore the balance to zero. “This is great for companies dealing with multiple accounts like an equipment company or real estate company that owns the office building,” Gallagher says. “A ZBA lets you bring all of your assets together so the bank can manage the moving of money around as needed.”
  • Imprest account. This is a good account to use for smaller, routine expenses. “We keep a balance of $5,000,” Gallagher relates. “So if we spend $1,000 because a vendor won’t take a credit card, for example, we’ll add another $1,000 to keep the balance at $5,000.”
  • Sweep account. This type of account is common with lines of credit or overnight investment. “If we have any money in our concentration account at the end of the day, the bank will ‘sweep’ it to an overnight investment fund and return it the next day. Also, if we need more funds in this account, the bank will pull funds in from our line of credit.”
  • Investment account. As touched on above, many construction companies also have an investment account. Most aren’t looking too great right now, which underscores Gallagher’s philosophy of limiting risk on these types of accounts. “My boss (company owner) has already risked a lot and worked very hard for his money, and he certainly doesn’t want me to lose it on risky investments,” Gallagher says.

In addition to banking accounts, Gallagher says there are several other banking tools he has come to find very useful in managing cash flow.

  • ACH. Automated clearing house services allow companies to schedule electronic transactions on certain days. “We are moving more in this direction,” Gallagher says. “It’s a great way to pay vendors because you can plan for exactly when the money will go out — and don’t have to worry about checks getting lost in the mail.”
  • EDI. Electronic data interchange allows companies to submit invoices electronically. Gallagher says this helps with both inflows and outflows.
  • Positive pay. Gallagher says this is a great tool to protect your money. “When we cut a series of checks, we download a file and upload it into the bank’s software,” Gallagher explains. “The file shows each check number, date, amount and recipient. The bank compares that information whenever a check clears. If there ever isn’t a match, the bank sends me a notification so I can check into it.”
  • Electronic blocks and screens. These are a couple other tools to help protect your money. “We set up an account just for electronic transactions,” Gallagher says. “If that account is ever compromised, there is a limited amount of funds available because we always keep this balance as close to zero as possible. Then, all of our other accounts are blocked for an extra layer of security.”

Kevin Gallagher is chief financial officer and treasurer at Head Inc., a national contractor specializing in airfield paving, including the production of concrete and asphalt to supply their projects. He was a featured speaker at CONEXPO-CON/AGG 2020. Visit HeadInc.com for more information.




Related Articles