Maximizing Earnings Through Smart Liquidity Management

Maximizing Earnings Through Smart Liquidity Management

Author: Erin Barton, Director, Commercial Payments Advisor

Businesses rely on effective cash and liquidity management to meet financial obligations, seize growth opportunities and navigate economic uncertainties. Fortunately, there are multiple strategies available to your business.

Manage Liquidity by Bucketing

Through regular cash flow forecasting, businesses can determine the funds necessary to service debt and for other financial obligations. From there, companies can determine “buckets” to align with when funds will be used. Think of this in terms of NOW, NEXT and LATER buckets for your cash.

Funds that will be needed immediately for upcoming operating obligations should be kept liquid in a checking or zero balance account for easy access. Excess cash that your business is holding onto for near-term known expenses can easily be parked in a money market account, where it can earn interest until it is needed.

Finally, there is excess cash held in reserve for distant expenses. Because your business won’t need these funds for a period of time, it is often wise to invest them in higher earning instruments, such as a Certificate of Deposit (CD).

Manage Liquidity Through Target Accounts and Sweeps

In addition to grouping expenses, your business can better manage liquidity by using target balance accounts and sweeps. Target balance accounts provide an effective mechanism for managing liquidity by centralizing funds into one location. For instance, a retail operation with establishments across several geographic areas can automatically sweep funds from individual zero balance accounts into a common account at the end of each day.

Sweeps can also provide your business with earning opportunities by automatically moving excess funds from a business checking account into higher earning money market accounts or other savings instruments when target balances are reached. In addition, sweep accounts can help manage a line of credit. Excess funds can be regularly moved to pay down balances, saving on interest.

Excess Cash Above the FDIC Limit, Treasury Services to Protect Your Funds

Deposits of non-personal accounts under a single tax ID number held at a financial institution are insured up to $250,000 under FDIC. The FDIC’s Electronic Deposit Insurance Estimator (EDIE) is a valuable resource available online that determines the amount of insurance coverage available for all types of deposit accounts placed with an FDIC-insured bank, such as FNBO.

As your business grows, it’s not uncommon to exceed FDIC limits at one bank. This is where your financial institution should step in with dedicated treasury services designed to protect your money, while providing the convenience of working with a single bank.

With IntraFi Cash Service^®, ICS (formerly Insured Cash Sweeps)¹, your business can benefit from the safety and simplicity that comes with access to millions of dollars in aggregate FDIC insurance across network banks through a single bank relationship at FNBO. ICS accounts help protect company funds by breaking up cash deposits that surpass the standard FDIC coverage limits. From there, assets are transferred to partner banks through a third-party network managed by IntraFi. IntraFi's ICS platform allocates funds across a series of participating FDIC-insured banks and makes certain that each account balance remains within the FDIC limit at every institution. Funds held in an ICS account can be accessed quickly, ensuring consistent cash flow and liquidity when needed.

By leveraging the Certificate of Deposit Account Registry Service (CDARS^®), your business can access millions in aggregate FDIC insurance across network banks for funds placed in Certificates of Deposits (CDs) over $250,000 with timed maturity dates. These accounts work the same as ICS accounts, except they follow the same maturity guidelines of a traditional CD.

Both of these solutions provide you the benefit of working with your trusted financial institution to protect your hard-earned business profits.

A list identifying IntraFi network banks appears at https://www.intrafi.com/network-banks. Certain conditions must be satisfied for “pass-through” FDIC deposit insurance coverage to apply. To meet the conditions for pass-through FDIC deposit insurance, deposit accounts at FDIC-insured banks in IntraFi’s network that hold deposits placed using an IntraFi service are titled, and deposit account records are maintained, in accordance with FDIC regulations for pass-through coverage.

Manage Funds with Bank Treasury Services

Bank treasury products and services can provide your business with additional tools for managing liquidity. Accounts payable and account receivables services are two examples.

While there are costs associated with implementing treasury solutions, FNBO provides options for mitigating the expense. An analyzed checking account allows your business to earn credit on account balances to help offset the fees associated with the use of treasury products.

It’s important to note that unlike interest, credits are not taxable, and your banker will work to determine the balance necessary to generate the credits you need. Excess funds can then be swept into other interest-earning accounts when targets are met.

Managing liquidity is a critical part of maintaining and growing your business. Banking treasury services can simplify the process and put you on the road toward higher earning potential, while delivering services that make your internal financial operations run more smoothly.

About the Author

Erin’s work is all about optimizing business payment solutions. Focused on boosting an organization’s performance, she works with her clients individually to maximize efficiencies across day-to-day cash management operations.