Strategies for Effective Business Idle Cash Management

Strategies for Effective Business Idle Cash Management
March 17, 2023

Idle cash is the amount of cash a business holds that is not currently being used to fund any operational or investment activities. Businesses must manage idle cash effectively to maximize returns and reduce the risks of holding excess cash. In this blog post, we will explore several strategies for effective business idle cash management and the tools that can help.

Strategies For Idle Cash Management

Cash Forecasting & Budgeting

One of the best ways to manage idle cash for businesses is through cash forecasting and budgeting. Cash forecasting involves predicting cash inflows and outflows over a given period. Budgeting, on the other hand, involves setting financial goals and allocating resources to achieve them. By forecasting and budgeting, businesses can better understand their cash needs and allocate idle cash to investments or debt reduction.

Steps to effective forecasting and budgeting include:

  • Collect & Analyze Financial Data - This includes historical cash flow statements, income statements, and balance sheets.
  • Estimate Future Cash Inflows & Outflows - Based on past trends and future expectations, estimate future cash inflows and outflows.
  • Identify Potential Risks & Opportunities - Assess potential risks to cash flow, such as changes in interest rates, and identify opportunities for increased cash flow.
  • Prepare A Cash Budget - Allocate funds based on budgeted cash flows to ensure that the business can meet its financial obligations.

Short-Term Investments

Another strategy for managing idle cash for businesses is through short-term investments. Short-term investments are typically low-risk investments with a maturity period of less than a year. Examples of short-term investments include money market funds, certificates of deposit, and treasury bills.

Factors to consider when selecting short-term investments include the liquidity, safety, and yield of the investment. Liquidity refers to how easily the investment can be converted into cash. Safety refers to the risk of loss of principal, and yield refers to the return on investment.

Benefits of short-term investments include:

  • Higher Returns Than Traditional Bank Accounts - Short-term investments generally offer higher returns than traditional savings accounts or checking accounts.
  • Low Risk - Short-term investments are generally low-risk investments, making them a good option for businesses that want to preserve capital.
  • Easy To Manage - Finally, short-term investments can be easily managed through online platforms, making them convenient for businesses.

Debt Reduction

Reducing debt is another effective strategy for managing idle cash for businesses. By reducing debt, businesses can reduce interest expenses and improve their financial position. Debt reduction strategies include paying off high-interest debt first, negotiating with creditors for lower interest rates, and consolidating debt.

Benefits of debt reduction include:

  • Improved Cash Flow - By reducing interest expenses, businesses can improve their cash flow and have more funds available for investments.
  • Improved Credit Score - Reducing debt has a positive impact on a business' credit score, which can help businesses secure lower interest rates in the future.
  • Reduced Financial Risk - By reducing debt, businesses can reduce their financial risk and improve their financial position.

Payment Optimization

Optimizing payments is another strategy for managing idle cash for businesses. By optimizing payments, businesses can reduce transaction costs and improve cash flow. Payment optimization strategies include using electronic payments, consolidating payments, and negotiating payment terms with vendors.

Benefits of payment optimization include:

  • Reduced Transaction Costs - By optimizing payments, businesses can reduce transaction costs, such as check processing fees.
  • Improved Cash Flow helps businesses improve cash flow by accelerating the collection of receivables and delaying the payment of payables.
  • Increased Efficiency - This can help businesses increase efficiency and reduce the time spent on manual payment processing.

Strategic Spending

Finally, strategic spending is another strategy for managing idle cash for businesses. Strategic spending involves investing in activities that generate long-term returns and support the company's overall goals. Examples of strategic spending include investing in research and development, employee training, and marketing.

Tools For Idle Cash Management

In addition to strategies, businesses can also leverage tools to manage idle cash effectively. These tools include accounting software, business cash management software, and financial advisors.

Accounting software can help businesses track cash flows and expenses, generate financial reports, and manage budgets. Cash management software can help businesses manage cash balances, predict cash flows, and automate payments.

Financial advisors can provide guidance on strategies for cash management for businesses, investment opportunities, and risk management.

In conclusion, managing idle cash for businesses is crucial for maximizing returns and reducing the risks of holding excess cash. Strategies for managing idle cash include cash forecasting and budgeting, short-term investments, debt reduction, payment optimization, inventory management, and strategic spending. Businesses can also leverage tools such as accounting software, cash management software, and financial advisors to manage idle cash effectively. By implementing these strategies and tools, businesses can improve their financial position and achieve sustainable growth. It's important to continuously monitor and adjust strategies for managing business idle cash to ensure ongoing success.

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.