With a limping economy and still-limited budgets, colleges and universities are under continuing pressure to ensure their cash flow management and forecasting processes are as accurate as possible.
Yet, the idiosyncrasy of the income calendar for higher education makes it a particular challenge. For two-semester schools, the big cash inflows come but twice a year. Consequently, the pressing question becomes how to stretch out that inflow to cover the times when the money is not forthcoming.
A WELL DESIGNED PROCESS
Stephen Graham, CFO of Seton Hall University, a 10,000-student private school in New Jersey, said “we don't have a cushion to be able to make any errors. It's got to be a very tight, well designed process and model for us to be able to achieve all of our operational and capital goals.”
Parsing out not only the cash itself but also the relevant management policies is a critical first step to getting a better handle on flow now and in the future. Ossie Spector, director of liquidity solutions at Bank of America Merrill Lynch, explained that typically the cash is parsed into three distinct buckets: Bucket number one is daily operating cash, for all the typical everyday tasks, whether paying the bi-weekly payroll or electric bill. Then there is the reserve operating cash, not needed daily, but perhaps quarterly, for items such as insurance premiums. Then there is the long term, for more strategic investments. Spector noted, with the last, “Often the endowment office is looking over the shoulders of the treasury management team at a college or university, looking to optimize money to be actively invested.”
The funds that are more dynamic tend to be operational in nature, and therefore need great assurances that the cash will be there when demanded.
“We always suggest a very conservative approach with respect to maintaining sufficient cash on hand to be able to meet payment obligations,” said Spector. “It’s an approach that works whether we are in good or bad economic times.”
Chief Financial Officer
Seton Hall University
CONSOLIDATING BANK FUNCTIONS
Seton Hall sought to bring greater clarity to its cash flow management by consolidating some of the operations that were being handled by multiple banks. Graham explained, “We had a few programs like our purchasing cards and our ATM's on campus that were running out with existing banks. We wanted to leverage a relationship with one bank to provide the majority of our back office support.” Among the benefits accrued by consolidating functions under one bank, such as Bank of America Merrill Lynch, said Graham, was “to provide savings for the future based on either better rebates or lower fees for certain services.”
Graham added, “We also wanted to strengthen our relationship and really look to one bank that we know, that we could pick up the phone and get someone that was really going to respond to us. Any time we've had any question on existing services or any potential services down the road, Bank of America Merrill Lynch has come in with a team and really helped us discuss and model out what they have available to us or what's available out in the market.”
RELIABLE REPORTING AND ANALYSIS
That combination of a knowledgeable staff and a reliable banking provider is essential to achieving a firm grasp on flow, according to Jim Pierce, senior director of bursar and treasury services at Georgia Institute of Technology. “Funds are coming in and out daily. By taking advantage of looking back over time and identifying the ebb and flow of our cash and identifying the different sources of funds, we've been able to put deeper, more stable cash to work more intelligently,” said Pierce.
Reliable reporting and accurate analysis are critical components for any school looking to build better cash flow processes. Pierce and his team at Georgia Tech have developed a detailed chart that helps to bring transparency to cash flow, to illustrate how, year over year, cash comes in and goes out. “You can draw a line across the bottom of the cash chart and realize that we never go below a specific level, and knowing that allows us to make better use of our funds,” said Pierce.
Technology is bringing new levels of speed and accuracy to cash flow management in academe. Spreadsheets are still a staple, but platforms such as CashPro® Online from Bank of America Merrill Lynch automate daily cash positioning and cash flow forecasting. Graham said, “With the tightness of the forecasting and the budgeting on a year-to-year basis, it’s essential to make sure you hit immediate goals, and then keep your eye on the prize for the future too.”
“We do work very hard at cash flow forecasting,” said Pierce. The process still requires a large amount of spreadsheets, but the goal remains the same. “So far this year we’re actually 98.3% accurate in our month-over-month cash flow forecast. We’re hitting it out of the ballpark in terms of understanding what’s going to be happening with our cash.”
Bursar and Treasury Services Georgia Institute of Technology
Technology is also helping colleges and universities get cash in the bank as fast as possible -- and reduce the amount of paper passed around campus. Toward that end, Georgia Tech has deployed state-of-the-art check scanners throughout those departments that take payments directly. Tied into the client’s accounts at Bank of America Merrill Lynch (or any technologically capable banking platform), the system provides departments with a quick and convenient means of making deposits without having to bring them to a central location. Pierce said, “We have those departments scan checks directly to the bank and they'll record the deposit in the ledger.”
With pinpoint forecasting that allows an institution to see into future cash flow and assurances in place that arm administrators with a continuous understanding of how things are working throughout the year – both inside and outside of an operation – colleges and universities can put their money to work intelligently. “Part of that,” said Pierce, “would include hanging on to your cash as long as possible, meaning get it into the bank as fast as possible and send it out when it's due and no earlier.”
ACCESS, VISIBILITY AND CONTROL
Spector added, “The bottom line is that it’s important for institutions of higher education of any financial strength to work with a cash management provider to plan ahead and make sure that they have sufficient cash on hand to honor their payment commitments. Having access, visibility, and control over the school’s cash so that it is readily accessible where you need it and when you need it is an obvious best practice.”
Ultimately, through a combination of a dependable banking provider and technologically efficient management, colleges and universities can significantly boost their efficiency, having the cash where it should be, there when needed, and structuring it to optimize value even in the most challenging of economic environments.
Accurate cash flow analysis and forecasting is more important than ever for colleges and universities
Consolidating cash functions under one bank offers a range of benefits, including rebates, lower fees and dedicated service
Financial technology also helps get cash in the bank as fast as possible and reduces the amount of paper on campus