Time to cash in for the retail industry

The retail industry is one sector where cash remains king and will continue to be ubiquitous for years to come. Yet despite this, the domain of cash management still remains a major challenge for retailers with cash being expensive to process and secure.

The increased focus on optimizing cash to drive efficiencies is highlighting how trapped cash can become a real hindrance, negating a retailer’s ability to fully put it to work. Cash can sit idly in registers and in cash rooms where its potential for investment, debt repayment or business expansion cannot be realized, thereby negatively impacting their working capital position. This is providing the catalyst for market leaders to look at new ways to manage store cash and overcome this challenge.

Although cash as a percentage of total sales is declining, managing store cash will remain a challenge for retail financial managers because the dollar volume of overall retail sales is rising, creating a net increase in cash usage. There are several contributory factors here; nearly half the U.S. population does not hold a credit card, one in five Americans does not hold a debit or credit card and judging by most recent data, 17 million Americans do not have a bank account.

Here we examine the trends impacting the management of coin and currency in the retail industry and explore new technology solutions aimed at improving retailers’ efficiency and reducing costs.

Traditional solutions
Current in-store management of cash and coins presents major hurdles for retailers. In many stores, employees manually count, recount, process and secure cash and continue to physically transport daily receipts to a local bank branch. Unfortunately, this timeworn approach addresses none of the challenges of increasing efficiencies or optimizing cash. On the contrary, this creates additional risk. Furthermore, with many bank branch networks being streamlined today, depositing at a branch will become increasingly inconvenient. The other option is the use of traditional cash vault services, where retailers contract armored carriers to transport store receipts to the bank each day, which can help to manage risk but clearly has drawbacks. All of these tasks can be expensive, time-consuming and prone to error and loss. Envelope Processing is another traditional vault service used by some retailers to reduce employee cash handling where store employees place register contents into envelopes that are sent to the bank by armored courier for counting and deposit.

The treasury evolution
Like most sectors today, retailers are focused on improving efficiencies, reducing costs and enhancing information management. Increasingly, new technologies are helping to revolutionize the way retailers operate and making a major contribution to significant long-term savings. This is enabling retailers to improve efficiencies, reduce costs, provide faster access to funds, mitigate risk and help free their staffs from certain duties to enable them to spend more time on customer service and focus on sales. By more effectively managing store cash, retail treasurers can achieve a number of working capital management objectives.

A holistic and more automated approach to cash management can enable retailers to eliminate trapped cash in-store. The physical aspects are being replaced by electronic processes, facilitating all transactions to be recorded and armored carrier fees and the risk of theft to be reduced. Additionally, retailers can gain faster access to funds and ensure they have greater visibility of their overall cash position. Some solutions even go as far as replacing client funds in the stores with bank-owned cash, thereby completely eliminating trapped cash. Increasingly, cash recycling is seen as offering the solution to retailers’ cash challenges. By combining new technologies leveraging smart hardware and software with more traditional retail practices, such as armored carrier pickups, cash ordering, same-day provisional credit on deposits, retailers’ cash management operations are beginning to be transformed.

In a challenging global economy, retailers are under pressure like never before as consumers continue to be reticent about dipping into their pockets to spend their hard earned cash. Retailers are increasingly focused on driving the business in ways which make an impact on the bottom line. The growing impetus to drive new ways to better meet the customers’ needs has perhaps been pursued by retailers at the expense of the infrastructure that supports and collects the results of this activity.  Ultimately, the currency driving profitability in the retail sector is sales. As retailers explore new solutions to increase efficiency, reduce costs and free up their staff to focus on revenue-generating activity, these businesses are equipping themselves with the potential to transform themselves. By optimizing their working capital management and significantly cutting costs, this is further helping their businesses to thrive. At a time when the value of cash payments in the U.S. is expected to rise further, retailers need to ensure they capture every opportunity.

Joan Brancaccio is director of deposit products for Bank of America Merrill Lynch.