Fresh Insights

Information created to address your business’s top challenges and concerns. To spark transformative thinking and problem solving.
April252014

Liquidity Management: Where to Park Your Excess Cash Short Term

liquidity management

Businesses of any size may need cash fast to handle the unexpected, and that cash needs to be: readily available, accessible through a variety of means, secure, and working hard for the business while smoothing the financial bumps in the road.

Where should businesses stash cash for easy access and safety? Today's banks offer a variety of options.

Liquidity Management

Many businesses generate excess cash – cash available after all operational expenses are covered, and over time, this excess cash can build up.

Managing your excess cash is an important aspect of successful business management. Talk to your accountant. Talk to your bank advisor about treasury management services and other short-term options to park cash securely or lower interest expense on loans.

Automate Liquidity Management to Save Time

Your bank may offer sweep accounts that automatically move money from one account to another once certain criteria are met – criteria you set.

You can create a liquidity management system to move money from one account to another on certain dates, once account balances meet a certain threshold, or when bank-sponsored investments roll over.

For example, an investment sweep account automatically scans your business checking accounts and moves excess cash into interest-bearing accounts, like a money market fund or government obligation fund, when account thresholds are met.

A loan sweep account moves money from specified accounts to pay down a business line of credit, or other business loans, saving money on interest while still keeping your company credit line available for contingencies. This loan sweep also will flow from the line of credit back to the operating account to cover inclearing checks.

A combination sweep account automatically moves excess cash to interest-bearing vehicles and to pay down loans based on percentages that you define. Pay down any outstanding balance on the line of credit as a priority to investing the excess cash.

These different sweep accounts offer flexibility to keep cash working hard yet still accessible, and by simplifying liquidity management automatically you can place excess cash where you want or need it.

Interest Paying Checking Accounts

Many banks offer commercial checking accounts that pay interest on your company's balance. Excess cash can generate regular income, and when paired with sweep accounts, also help simplify small business financial management and keep your short-term cash working harder.

Money Market Accounts

Money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per tax identification number.

An insured money market account earns interest, the cash is easily accessible in person or online using a computer, tablet, even your smart phone, and it's insured by the FDIC.

Investment Options

Your bank advisor may offer investment options that are secure, liquid and hold the potential to earn more interest on excess business cash.

CDs are one option and are available in any denomination, even for terms as short as 30 days. Consider laddering CDs – buying a 30-, 60- and 90-day CD in equal amounts. You earn more interest, and you're never more than 30-days away from needed excess cash.

Ask your banker about participating in the CDARS program, a CD deposit placement program which spreads your excess balances across insured participant banks up to $50 million, while receiving a single statement that summarizes all of your business's CD holdings.

The key to any investment you make as a self-directed investor is preservation of capital - don't lose what you have. Remember this is company money that helps you meet the unexpected.

 

Talk to your banking professional about the best liquidity management options for your business.