Make Your Business Cash Work For You

treasury services for businesses
April 25, 2023

Every business, regardless of its size, faces the challenge of managing its cash resources effectively. Business cash management is an integral aspect of financial planning, involving tracking, optimizing, and investing liquid assets. One critical aspect of cash management for businesses is addressing the problem of idle cash. This blog post will guide you through the importance of managing idle cash, the concept of treasury management, and the best practices to enhance your corporate cash management strategy.

Understanding Idle Cash

Idle cash refers to the surplus funds a business holds in its accounts, which are not currently being utilized for daily operations or other investment activities. It may include cash reserves, unused lines of credit, and excess cash flow generated from business activities. For instance, a startup may accumulate idle cash if it receives substantial funding but has not yet deployed the funds for planned projects or growth.

The primary causes of idle cash in a business are inefficient cash flow management and overly conservative financial planning. While maintaining a cash buffer can be prudent, excessively large cash reserves may hamper growth and diminish a company's profitability. Three significant risks are associated with idle cash:

  • Loss of purchasing power - Inflation erodes the purchasing power of idle cash, leading to decreased financial flexibility in the long run.
  • Opportunity costs - Idle cash does not generate any returns, which means missed investment opportunities and forgone profits.
  • Cash theft and fraud - Large amounts of idle cash are more susceptible to theft, fraud, or embezzlement, especially if proper internal controls are not in place.

The Value of Business Cash Management

Effective business cash management is crucial for ensuring liquidity, maximizing profitability, and enhancing financial stability. One of its primary goal is for businesses is maintaining sufficient liquidity to meet short-term obligations and seize business opportunities as they arise. Adequate cash reserves allow a company to avoid unnecessary borrowing costs and provide the necessary flexibility to address unexpected financial challenges.

The best corporate cash management involves investing idle cash in income-generating instruments or deploying it to reduce borrowing costs. Such measures can help maximize profitability, contributing to the overall growth and success of the business. A sound strategy also contributes to a company's financial stability by strengthening the balance sheet and building creditworthiness. Financially stable businesses can access better financing options, negotiate more favorable terms, and expand operations more confidently.

Treasury Management Strategies

Implementing robust treasury services for businesses can help streamline cash management processes, improve forecasting accuracy, and optimize the use of idle cash. Effective cash management for businesses, including startup cash management, starts with accurate cash flow forecasting. Both short-term and long-term forecasts should be developed, taking into consideration seasonal trends, expected changes in customer demand, and potential economic fluctuations.

Implementing a Cash Management Policy

A comprehensive policy can provide clear guidelines for managing and deploying idle cash. Key components of a cash management policy include:

  • Defining cash management objectives - Identify the primary objectives for managing cash within the organization, such as ensuring liquidity, maximizing returns on cash, or minimizing risks associated with holding cash.
  • Establishing guidelines for cash handling - Set parameters for managing cash, such as target cash reserve levels, acceptable investment options, and limits on cash balances held in various accounts.
  • Identifying roles and responsibilities - Assign specific responsibilities for cash management to relevant personnel, ensuring accountability and proper oversight of cash-related activities.

Efficient Deployment of Idle Cash

Idle cash management requires proactive strategies to deploy surplus funds in a way that maximizes profitability and minimizes risks. For instance, utilizing idle cash to pay down debt can lead to substantial savings by reducing interest expenses and strengthening the company's balance sheet. Prioritize high-interest debt and consider the impact of early repayment on the company's liquidity and future cash flow.

Investing idle cash in short-term, low-risk financial instruments can also generate income while maintaining liquidity. Some suitable investment options for idle cash include:

  • Treasury bills and certificates of deposit - These government-issued securities are highly secure and provide fixed returns with short-term maturities.
  • Money market accounts - Money market accounts offer higher interest rates compared to traditional savings accounts while maintaining relatively easy access to funds.
  • Commercial paper - Short-term, unsecured debt issued by corporations with high credit ratings can provide attractive returns and low risk, although liquidity may be limited.

Deploying idle cash to fund growth opportunities can be a smart way to achieve long-term returns. One strategy to consider is using this cash to finance business expansion or acquisitions. This can have a number of benefits, such as increasing market share, generating economies of scale, and improving the company's competitiveness. Another option is to invest in research and development, which can lead to the creation of new revenue streams, increased operational efficiency, and a stronger brand value for the company. By investing in these areas, a company can set itself up for long-term success and growth.

Optimizing Cash Management through Technology

Leveraging technology can significantly enhance cash management for businesses, enabling better decision-making and reducing manual errors. Cash management platforms by the best cash management company can automate key processes, such as tracking cash balances, reconciling accounts, and executing transactions. Implementing a cash management platform can streamline operations, reduce the potential for errors, and allow for real-time access to critical financial information.

Additionally, advanced financial analytics tools provided by cash management platforms enable businesses to monitor cash flow trends, identify anomalies, and make data-driven decisions to optimize cash management. Real-time financial data can help pinpoint inefficiencies and uncover hidden opportunities to maximize profitability. Cash management companies also prioritize the security of their clients' financial information by implementing stringent encryption and secure access protocols. Regular monitoring and audits of cash management platforms can help identify and address potential vulnerabilities, ensuring the confidentiality and integrity of your financial data.

Idle cash management is a critical aspect of effective business cash management. By addressing the causes and risks of idle cash and implementing robust treasury services for businesses, companies can ensure liquidity, maximize profitability, and enhance financial stability. Now is the perfect time to reevaluate your cash management strategies and take proactive steps to optimize your business's financial performance.

Treasure Technologies Inc.
1324 Clement St
San Francisco, CA 94118
* Returns are projected based on current performance and are gross of fees. Treasure's fee is 35 basis points on Assets Under Management. There is no fee for Treasure Cash. Returns are subject to change daily.

** Treasure Cash accounts are held at Grasshopper Bank, N.A., our FDIC partner bank. Return differentials based on national average checking account rates as of 5/24/2023. Source: FDIC

Website is operated by Treasure Investment Management, LLC ("Treasure"), a wholly-owned subsidiary of Treasure Technologies, Inc., and an investment adviser registered with the U.S. Securities and Exchange Commission ("SEC"). Brokerage services are provided to clients of Treasure by Apex Clearing Corporation ("Apex"), an SEC-registered broker-dealer and member FINRA.

Investing involves risk, including loss of principal. The contents of this website are provided for information purposes only and do not constitute an offer to sell or a solicitation to buy securities. Past performance is no guarantee of future returns.