Why cash is still king for these chief financial officers

The sudden collapse of Silicon Valley Bank and First Republic in the spring of 2023 prompted financial executives to take a close look at how they manage company cash. With their funds frozen at SVB, some CFOs found it impossible to make payroll.

At last November’s MIT Sloan CFO Summit, chief financial officers spoke about how they managed their operations during the crisis and have adjusted their cash management strategies to be more resilient.

“Now we talk about cash more — it’s just a matter of life these days,” said Dustin Pederson, CFO of Locus Robotics. CFOs today want to know: “How do we maintain and hold the cash we have and use it appropriately?”

During a panel discussion titled “Cash Is Still King,” Pederson and three other finance executives offered advice for managing cash in a post-SVB world.

Diversify your bank accounts

Locus, a maker of autonomous mobile robots, was an SVB client at the time of the bank’s collapse, and it still is — the company has a line of credit with SVB. “They were great partners throughout,” Pederson said. Even so, the collapse made for “a very harrowing week” that spurred Locus to diversify its bank accounts.

When SVB began to unravel, Locus quickly set up an operating account with Chase. In hindsight, Pederson said, the move was a good one, given that Chase has a strong global presence and Locus continues to expand internationally.

At Vendr, CFO and chief operating officer Jason Quinn was concerned not only about SVB, where the software company had a small account, but about contagion affecting First Republic Bank, where the firm maintained its operating account.

With Quinn worried about being able to pay employees, Vendr moved its money to “some top banks,” including Wells Fargo, and worked through the weekend to ensure that the new accounts were integrated with its payroll provider.

Today, Vendr has its cash in three major banks, Quinn said, noting, “We do a daily sweep.” The only funds remaining in the accounts are payments received late in the day. “Most everything gets invested at five-and-a-quarter points, which is pretty meaningful at this point,” he said.

Consider allocating money in U.S. treasuries

Dynavax has what CFO Kelly MacDonald characterized as “a pretty sophisticated treasury and asset management policy and process.” The biopharmaceutical company routinely scrutinizes how much liquidity it needs at any given time and how much cash on hand it needs to execute business operations.

Every quarter, the company’s executives meet with two different asset managers and explore different options for safely holding capital “while still maximizing the return on that capital from a yield perspective,” MacDonald said.

Lately the company has been putting free cash in U.S. treasuries, which are generally considered a safe and secure investment option. “We take a pretty conservative approach,” MacDonald said. “We’re not an investment bank, so we’re not here to take a lot of risk with our capital.”

Monitor fraud risk

The SVB event wasn’t just hard on cash management — it was “fraught with fraud risk,” MacDonald said. Plenty of offenders tried to take advantage of the situation with phishing scams targeting businesses that needed to move accounts and deposits on the fly.

“One of the major learnings and takeaways that we were able to operationalize very quickly thereafter was around fraud protections,” MacDonald said.

Dynavax implemented a policy requiring employees to remain on the phone with banks when transferring large sums of money. “That’s probably a best practice that hopefully everybody in this room’s already partaking in, but for us it was an unfortunate reminder of the need to be really strict about some of these things from a fraud risk perspective,” she said.

Keep an eye on collections

As the SVB collapse was unfolding, Chris Caprio, CEO and former CFO of Focus Technology, proactively ran an analysis of customers that would potentially owe the IT solutions company money in the coming week.

The move was in keeping with Caprio’s regular practice of holding an “old-school” weekly call with his collections manager to review the accounts of problematic customers — not necessarily those in arrears, but customers that are slow to respond to messages or might simply have incorrectly set up their payment systems.

The COVID-19 pandemic and SVB “completely reiterate to me, and I’m sure to many of you, [the importance of] contingency planning,” Caprio said. “You can’t just wait for the contingency to happen and say, ‘Oh, we should have had a contingency plan for that.’”

Increase internal communication

Most CFOs are good at communicating up to board management and outside investors, “but the SVB situation made me realize, probably for the first time in 20 years, the need for internal communication,” Caprio said.

“I think with all the interest rate changes and inflation, our employees are more educated, and they want to know: ‘What are you guys doing with our money as a company?’” he said.

Even though Focus Technology wasn’t an SVB customer, management reiterated to Caprio that he needed to tell employees that the company wasn’t at risk.

“We’ve spent a lot of time and effort over the last six months communicating that,” Caprio said. “As CFOs, we are always good about explaining cash up, and I think we need to spend more time explaining cash down to our employees and what we’re doing.”

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