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Five ways that government can optimise operating cash flow

Five ways that government can optimise operating cash flow

How can government agencies better manage their operating costs, while protecting integrity and citizens' best interests?

It’s no exaggeration to say that government agencies operate under a microscope, with the public, the media and, of course, representatives scrutinising every decision. Like all large organisations, government agencies need to make business decisions that make good fiscal sense. They must also take into account a range of complex social, political and legislative considerations beyond the scope of private enterprise. This can affect the sector's ability to innovate and create efficiencies. And if the strategy isn’t successful or takes longer than expected, they can face considerable public backlash.

So how can the government sector ensure that it manages cash flow to provide services quickly and efficiently, while maintaining a transparent audit trail and better engaging with its customers?

1. Migrate receipting channels

Like private enterprise, the public sector delivers its services through three main channels: face-to-face, telephone or online. Unsurprisingly, face-to-face transactions are the most expensive.

Some private sector corporations are now charging a fee for in-person services to mitigate these costs — but for governments, fee driven push migration strategies could prove unpopular. It can be perceived as unfair by citizens already paying for services through taxes or unfairly impact disadvantaged groups. However, this doesn’t mean that governments are without options.

Well thought out client centric migration strategies can pull customers across to more efficiency and cost effective receipting channels. This starts by building deep insights into why customers choose a particular channel and ends with an enhanced end user experience incorporating a range of digital and telephony options. Investing in a migration strategy delivers both increased customer satisfaction and more timely payments receipted at lower cost, making it much easier to forecast and manage operating cash flow.

2. Put it on the plastic

As every large organisation knows, issuing corporate cards for staff and department expenditure has advantages. Cards make it easier for agencies to keep track of spending, maintain visibility over transactions and simplify reconciliation. They also create a more transparent audit trail and increased compliance with purchasing policies.

Investing in an end to end integrated real-time expense and card management platform can deliver enhanced card program security, significant process and reconciliation efficiencies, deep category spend insights to drive greater procurement outcomes, and ultimately, improved operating cash utility.

3. Improve payment reconciliation

Agencies that receive large volumes of B2G payments often find operating cash flows tied up in reconciliation bottlenecks due to incorrect or ambiguous reference data. Some government agencies have found a solution to this problem with their business customers using CommBank’s e-lock box. This solution gives an agency a BSB of their own, which can be used to allocate account numbers, as if they were a branch of a bank. Agencies can then allocate incoming payments from businesses correctly — reducing costs and saving staff time.

4. Use a supply chain facility

Many state and local governments have policies to ensure they use local suppliers wherever possible. Typically, smaller businesses have shorter terms of trade, which means that governments must pay them regularly. While this has positive implications for local economies, it can add cost and complexity to cash management processes for government.

One option available to government is to allow smaller providers to use their credit rating to access credit at a much lower rate, instead of using their own overdraft facilities. In exchange, the agency can extend its operating cash flow and maximise the return on those funds. Consequently the supplier can access funds immediately, and at a much lower rate — which enhances its cash flow. 

5. Lease instead of buy

Government can also smooth out capital expenditure over its operational expenditure cycle by leasing equipment. By leasing depreciating assets like IT, government agencies can make significant savings — and enjoy other benefits too.

Leasing allows agencies to access the newest and most efficient capital equipment. Lease payments can remain relatively stable, so agencies can shift the purchase of capital equipment to their operational expenditure.

What’s more, when departments lease equipment, the financier funds its residual value, so the departments only need to pay for a portion of the capital equipment. This releases cash flow for other government priorities. Finally, because the leasing provider collects the equipment, agencies can also save on the significant cost of paying another provider to dispose of the equipment.

Find out more:

For a confidential discussion about working capital solutions for your agency or department, talk to your relationship banker today.

Nick Aronson
Nick Aronson

Managing Director and Global Head of Transaction Banking

Nick Aronson is the Commonwealth Bank’s MD and Global Head of Transaction Banking, responsible for cash management, payables, and receivables, merchant and banking platform solutions.