The Ultimate Guide: Managing Idle Cash

Idle cash is the cash that is unprofitable because it lacks progress. Progress in this sense would come from investing in the right asset class or using the excess to grow the businesses (or a combination of both). Due to inflation, idle cash continuously loses value as it remains unused. This encompasses not only unused cash but also cash equivalents such as non-interest providing bank accounts.

Although it is recommended to set aside some amount of cash for unexpected cash needs operating or otherwise, when it comes to what to do with idle cash, businesses can better manage their excess cash by finding a method where it appreciates in value while it is not flowing between entities or being used for operating needs.

Businesses can have disparate cash and investment accounts. Finance and treasury departments have well-defined investment policies that they adhere to in terms of excess cash. Idle cash management gets complex and tedious when there are multiple entities involved and the cash itself is quite distributed. Management of cash, specifically the investment of excess business cash, is manual and difficult to track. Each entity may have multiple bank accounts, including investment accounts and Zero-Balance Accounts (ZBAs).

There are a number of ways to make idle cash productive, each having a distinct risk factor and return expectation. Purchasing a fixed asset such as equipment or machinery that will increase production capacity is investing in a productive asset. If a business prefers to use its funds for more short-term expenses, it can make operational purchases that are necessary for the daily operation of a business, such as prepaying suppliers and earning discounts.  A business can use excess cash to pay down debt earlier, eventually lowering interest expenses, or improving credit. Businesses can also use excess cash to do Mergers and Acquisitions (M&A).

Businesses need to know what excess, idle cash is available and investible today, as well as its investment duration based on operating cash flow needs. They need to know when to have liquidity and be able to judge when to invest in any excess liquidity.

While businesses can use their idle cash, they should aim for a fine balance between pushing cash into investment accounts and drawing from said investment accounts when it would be most advantageous.

Cash forecasting has developed into a major advantage that helps companies minimize their overall idle cash. Fintech companies like Payference provide tools that serve to predict the amount of cash needed to meet demand so businesses are not setting aside excess cash that will ultimately turn to idle cash. This forecasting not only supplies demand projections but also for incoming revenue. Payference can assist businesses with the question of what to do with their idle, excess cash with investment advice, funding decisions, and projecting cash flow and streamlining the idle cash management process. Managing cash flow is more flexible when all financial data is stored in one place, eventually allowing for more accurate predictions on various aspects of cash flow.

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