Achieving More with Less: Optimal Use of Surplus Funds

Achieving More with Less: Optimal Use of Surplus Funds

Many major businesses are failing to maximize their available cash due to a lack of effective treasury management practices. With a more efficient and strategic approach to managing their cash, businesses can make their surplus cash work harder for them, helping them to grow further.

In response to the ongoing economic instability, many firms are currently playing it safe with regards to their surplus cash. The trend is to pay out large dividend payments, when that cash could be used to increase company’s returns. This longer-term view can be achieved with the help of a treasury management solution, which can help to centralize treasury functions, improving cash visibility and the number of opportunities to maximize returns on surplus funds.

Once a business has established its financial strategy and its goals for moving the company forward and maximizing growth, it is important that it aligns its treasury management practices with these goals. There are several ways that firms can generate better returns on their surplus cash, improving a company’s future growth prospects, while also optimizing short-term returns. 

Cash Pooling

Providing a business has excellent cash visibility, cash pooling can be an effective way to optimize the use of surplus funds. The practice of moving cash around accounts to benefit from the very best credit and debit positions possible can help corporations to increase their interest returns. Cash pooling will also help them to minimize their exposure to unnecessary borrowing and protect against negative bank balances, which can impact both their finances and their reputation.

From an administrative point of view, cash pooling can benefit firms as they can concentrate all activity on a single account, where sufficient funds are always in place. This way they don’t incur unnecessary bank fees and can generate income from interest paid on larger balances. 

These assets can then be used to help grow the company or provide a strong buffer in the event of further economic downturns.

Intra-company Netting

Similarly, intra-company netting – offsetting cash flows between corporate bank accounts to minimize the overall number of transactions required - also helps businesses to optimize the use of their surplus funds by reducing the cost of carrying out cross-border business. Global firms need to bear these costs in mind and those that practice netting reduce this financial burden by settling costs incurred when cash is moved between international business units belong to the same corporation. Minimizing foreign exchange exposures by offsetting accounts receivable and accounts payable within the same business can help enhance assets.

Cash Visibility

All this is only possible by gaining a high level of cash visibility, so that a treasury department has immediate insight into their international bank balances whenever they need it. 

Chief Financial Officers are increasingly being asked to achieve more with less and this is why optimal use of available funds is so essential in today’s business world. Companies are expanding overseas and are finding themselves with complex cash positions that need to be tracked and optimized at all times and this is a challenge too far for many. As a result, some resort to easy options, such as dividend payments, instead of maximizing returns from the surplus they are generating. 

By implementing a treasury management solution, businesses gain an enhanced level of cash visibility, which equips them with the insight they need to turn their surplus into some serious profit.

December 10, 2012