How To Get the Most Out of Your Cash Accounts and Banking Relationships - A Guide for Small and Mid-Sized Businesses
This article discusses how to get the most out of your cash accounts and banking relationship. We’ll cover how to benefit from the current interest rates and other services your bank may offer.
Interest Bearing Accounts
If you haven’t taken advantage of the recent interest rates, now is the time. Business checking accounts typically offer low-interest rates. You can take advantage of current rates by temporarily moving funds into higher yielding accounts including the following:
Interest Bearing Demand Deposit Account (DDA)
An easy first step is to inquire about interest-bearing accounts DDA accounts. These may include checking or savings accounts but offer higher interest rates than you currently earn.
Money Market Accounts
Standard Money Market accounts offer higher interest rates because the bank invests your funds in short-term, highly-liquid investments.
Money Market Sweep accounts offer the same benefits but have a higher yield because they automatically transfer excess cash into and out of money market funds. Sweeps allow you to earn more interest while keeping your funds accessible.
CD’s
Certificates of Deposit generally offer the highest interest rates because your money is unavailable until a specific date.
How to Decide Which Account and How Much?
To determine how best to take advantage of these rates, prepare a 12-week cash flow and a forecast for the year. Using the forecasts as a guide, keep enough funds in your checking account to manage near-term needs.
Use a money market sweep account to keep funds liquid while earning a better-than-average return.
Consider investing the funds you don’t need in the near term into a CD. You can also “ladder” or invest in several CDs with staggered maturities. Your bank may assist with this, and analyze the balances and volume in your account to suggest what is best for you.
Take Advantage of Other Bank Services
Credit Card Rebates
Most small business owners take advantage of the rebates offered by credit cards. Most aren’t aware that their bank may offer a “call campaign” to contact their vendors and get them to accept payment via credit card. This campaign can significantly increase the number of vendors who will accept credit cards. The rebates for a high volume of credit card payments can be substantial. Some banks even offer a service to help code the expenses to your accounting system. This service will provide income and help you manage expenditures.
Positive Pay
Positive pay helps prevent check fraud. Each check run is entered into the bank’s positive pay portal and the bank verifies the information when it cashes the check. This verification step prevents someone from changing the name or amount on a check and presenting it to the bank.
Foreign Currency
Many banks offer foreign currency ACHs and wire transfers. Some offer foreign currency hedging and multi-currency accounts. Hedging can help level out the impact of foreign currency fluctuations. Multi-currency accounts allow you to keep foreign currency balances in the local currency without opening an overseas account. For example, you can use this account to collect customer payments and pay local vendors in Euros.
Check Scanner or Lockbox for Deposits
If you are making trips to the bank, consider a check scanner or lockbox. A check scanner allows you to make deposits from your office computer. A lockbox is a separate address just for deposits. The bank opens the mail, deposits the funds into your account, and scans the checks and remittance information. The scanned images are made available to your online.
Fraud and Separation of Duties
Set up your bank portal to ensure users can’t access or initiate certain transactions. For example, if you use wire transactions, one user creates the transaction, and another approves and sends it. Access controls help prevent fraudulent wires, which are often costly and impossible to recoup. Work with your bank representative to ensure the optimal configuration for your company.
How We Can Help
Highpoint CFO provides CFO consulting services. Contact us to learn how we can help you with forecasting, cash flow and working capital management, by-product profitability reporting, and data analysis using business intelligence tools such as Power BI.
About Highpoint CFO
Highpoint CFO is a CFO consulting firm based in Tampa, Florida that serves clients throughout the US.
Scott Young is the President and Principal Consultant at Highpoint CFO. He is a CPA, Certified Merger & Acquisition Advisor (CM&AA), and Certified Value Growth Advisor (CVGA) with over thirty years of experience in finance and accounting at industry-leading companies.
