The Federal Reserve raised interest rates four times in 2018,and Fed officials are anticipating continuing increasesthis year. This marks the first period of rising rates in overa decade. It's also an opportune moment for companies to adjustcash management strategies accordingly.

Businesses with the analytics resources to run marketsimulations can use scenario planning to anticipate—and preparetheir response to—the most likely interest rate outcomes.However, many businesses lack the resources to effectively completesuch an analysis. Their analytics teams may be lean (ornon-existent), but these companies will be affected by rising ratesat least as much as the big guys.

Small and midsize businesses might be tempted to simply movetheir excess cash into interest-bearing accounts with rates ofreturn that are rising. This approach will be especially appealingfor organizations whose sales are on the upswing. But maximizinginterest earned on cash is not the only priority a business shouldconsider.

Companies of all sizes need to carefully examine both theirbalance sheets and their cash flow statements in the context ofrising interest rates. Two specific strategies that treasuryorganizations should consider for optimizing cash flows in thisrate environment are renegotiating payment terms and loanagreements, and taking advantage of technology.

Renegotiating Payment Terms and Loan Agreements

Businesses that maintain an operating line of credit with avariable interest rate should always be on the lookout foropportunities to improve cash flow. A marginal reduction in thebalance outstanding on the credit line can often produce a greaterbenefit than would a slightly higher yield on surplus cash sittingin a bank account.

Moreover, reviewing collections and disbursement practices mayreveal opportunities to renegotiate payment terms with clientsand/or vendors to reduce outstanding balances on the workingcapital line of credit. At this point in the rate cycle,competition for loans is increasing, which results in a wider rangeof options for business owners.

Securing advantageous rebates and terms is an importantcomponent of an effective cash management strategy (as noted inDeloitte's working capital series). Now could be agood time to secure a new loan, or to extend the terms of existingloans at a fixed rate, since the cost of a variable-rate loan willinevitably increase as rates continue to rise.

Re-evaluate Payments Processes and Technologies

Ten years ago, customers across industries paid most of theirbills by check. Today there are many more payment rails from whichto choose, and many of them significantly increase the speed withwhich businesses can collect payment. Faster payments, in turn,mean a company can reconcile accounts more efficiently. Thisquicker turnaround can translate to 15 or 20 days of cash that theorganization wouldn't otherwise have. Businesses can use thesefunds to pay down credit lines.

A number of cash management technologies that are available nowdid not exist during the previous period of rising interest rates(2004 to 2007). Mobile payments, for example, can have asignificant impact on company cash flows. Not only do they providean opportunity to receive funds in new ways—which presumablycreates new opportunities to increase revenue—but these solutions'real-time access to payment data also allows companies to moreintelligently manage receivables and payables.

Companies in retail or similar sectors should consider acceptingcredit cards and mobile payment options, if they don't already. Thedecision process needs to consider the effect that interchange feeswill have on cash management, as well as the need to ensure asmooth and positive experience for customers. On the flip side,companies can schedule payments to their own vendors with abusiness purchase card (p-card) or online transfer inorder to maximize their time to pay outstanding balances.

Capitalizing on technology innovations to accelerate ongoingprocess improvements is likely to pay dividends as rates continueto rise.

An ever-expanding range of ways to facilitate cash management canintroduce a higher degree of complexity to the task. A trusted andqualified financial adviser can be an invaluable partner innavigating this process. Companies that evaluate their optionscarefully, and take measures to adjust their payment terms andtechnology systems accordingly, will be better positioned to keepcash flowing—and business running smoothly—as interest ratescontinue to rise.

Jeremy Parker isdirector of corporate treasury solutions for Boston Private, aprovider of integrated wealth management, trust, and privatebanking services. In this role, he is responsible for deliveringadvice and products to help clients successfully manage their cash,operating liquidity, and financial risk. Parker previously servedas treasurer of Boston Private Bank & Trust.