Uncertainty surrounding US tariff policies are making it difficult for financial executives at organizations around the world to plan and implement vital business decisions.
The New York Federal Reserve Bank’s April survey of manufacturers, for instance, saw steep drops in “forward-looking indicators,” with respondents anticipating delivery delays, fewer orders, less inventory, and lower levels of employment. The global Economic Uncertainty Index is higher than it’s ever been. As the president of Canada-based Cavalier Tool and Manufacturing put it, “Our quotes are down. Our orders are down. Our purchase orders are down. People are scrambling and pivoting. The reality is almost nothing is moving.”
With so many businesses at a standstill, financial executives should consider taking one action that can save their organizations money now: smart cash management.
A big impact for businesses
Before delving into how executives can address today’s financial challenges, it’s important to understand how we got here.
What we are seeing now is the result of 50 years of ineffective trade policy by both Democrats and Republicans. American consumers have become accustomed to purchasing cheap, foreign-made products, in large part because wages have not kept up with inflation. In other words, if faced with the decision to buy a $3,000 American-made couch and a $700 couch from Wayfair, we’ll choose the latter because we’re experiencing rising costs across the board (taxes, food, gas, etc.).
This state-of-play, coupled with higher tariffs, has set off a domino effect in which not only American consumers but businesses around the world feel the weight of higher costs. In sum, as tariff rates and uncertainty about those rates mount, businesses will see:
- A sharp increase in the costs of goods sold due to rising material prices. Construction input prices, for instance, are now 0.8% higher than a year ago and more than 40% higher than February 2020, largely as a result of higher natural gas, steel, copper, and lumber prices.
- Orders and sales slowing because other companies are facing the same issues. As Stephen Lamar, CEO of the American Apparel & Footwear Association, told CNBC: “With prohibitively high tariff levels on U.S. imports from China, many companies have no choice but to cancel orders.”
- Difficulties in effectively forecasting and setting prices—because who knows where tariff rates will end up?
- Less liquidity, because they are having to pay more for inputs. Liquidity was already a growing issue, as evidenced by Ampersand’s latest Depositor Priorities Survey, which found that over 40% of depositors’ banking experiences would improve significantly if their institution could guarantee access to funds when needed.
- Less willing banking partners. When you have less liquidity, it’s harder to get a line of credit. Tariffs are already having an impact. According to recent PYMTS Intelligence data, fewer than half of U.S. small and medium-sized businesses currently have access to any form of financing.
To save money as costs rise, improve cash management
Unfortunately, there aren’t many levers financial executives can pull to address these issues. That’s why it’s more important than ever that they act where they can. A better cash/deposit management strategy is a prime example. After all, if done right, a company with, say, $20 million in cash deposits could net several hundred thousand dollars in returns.
Achieving this isn’t difficult—it’s simply the product of great banking relationships, coupled with effective deposit management. Any company with deposits of this size should be obtaining a competitive rate via their bank (or a network of banks) and using these returns to help alleviate rising costs during this time.
There are other benefits. Effective deposit management can help executives understand where and how their organization’s cash is managed. It’s the first step toward good financial hygiene during this volatile moment. For example: How many cash accounts do you have? Where are they? Are they fully insured? This is especially critical now: that is, if your bank fails, can you withstand losing uninsured funds? There’s a reason why 90% of depositors maintain ongoing concerns about the security of their deposits.
What’s more, banks need cash, too. Improving liquidity and cash management can help organizations secure better rates from their banking partners, which in turn can provide a nice cushion from interest earnings.
The bottom line? You wouldn’t run a business without an accountant or lawyer. The same goes for a treasury management expert who can help you make the most of your cash—especially amid extreme economic uncertainty.
Kelly A. Brown is the chairman and CEO at Ampersand, which offers deposit management services.