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Striking Balance - How to Manage Liquidity And Excess Corporate Cash

Learn the best practices for striking a balance and how to manage liquidity and Excess Corporate Cash via Fresh Insights.

If your company is managing cash efficiently, you may find that you have excess cash in your business checking account from time to time after all of your operational expenses have been paid. The question then becomes: How should you manage this excess cash so that it is available when you need it and also generating the highest possible return?
Liquidity management is important for growing small businesses. The key is to choose the right “parking spot” for your excess cash that provides sufficient liquidity so you can tap into funds when you need them while earning a competitive rate of return at the same time.

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. By automating liquidity management, 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 and the cash is easily accessible in person or online. 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 30-, 60- and 90-day CDs 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. This is a CD deposit placement program that spreads your excess balances up to $50 million across insured participant banks. You’ll receive a single statement that summarizes all of your company’s CD holdings.
The key to any investment you make is preservation of capital — in other words, don't lose what you have. Remember: This is company money that helps you meet the unexpected.
Cadence Bank offers a wide range of options that can help you with liquidity management including sweep accounts, checking and money market accounts, and a variety of different investment options. Contact a Cadence Bank representative to discuss the best options for your company.
This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes. 

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