With interest rates at their lowest levels in recent history, developing strategies to optimize cash within your corporate treasury is more challenging than ever. Surprisingly, opportunities do exist for both minimizing costs and maximizing capital resources in the current financial environment.

Look Within Your Company First

The first course of action is to obtain accurate, real-time financial information from each department in your company. It is imperative to know where your funds are and how much cash is available or being used at any time of the day. Once this up-to-the-minute financial data is in hand, smarter, better-informed investment and funding decisions can be made.

Lower the Rate of Your Loans and Credit

With today’s rock-bottom interest rates, you can take advantage of more favorable rates to refinance your company’s higher-rate loans and lines of credit. This action could save your company hundreds or even thousand of dollars over the long term – and free up more cash for investments or new debt at lower rates.

Consider Extending Your Credit Terms

Due to the numerous bank consolidations that have taken place over the years, fewer borrowing options are now available. Yet, since short-term funding is becoming more difficult to acquire, many banks are receptive to extending the maturity of loans. As such, it is an option to think about.

Find Just the Right Balance

Be aware that when you extend your debt from short-term to long-term, the cost of capital increases. To achieve the right balance, there should be some short-term debt in place to handle immediate cash shortages and to take advantage of even lower rates. However, finding short-term sources of funding may be difficult because traditional sources are diminishing.

Another strategy to consider is exchanging a portion of your debt from a fixed rate to a floating or variable rate. This allows you to lower your average credit cost since today’s variable rates are substantially lower than fixed rates. Interest rate exposures also may be managed more effectively this way. However, to protect yourself against rising rates and inflation, use caution with an interest rate swap.

In order to know for certain what half of your costs will be no matter how the market fluctuates, keep at least 50 percent of your debt portfolio set at a fixed rate.

Be Prepared for What’s Ahead

Although it’s hard to predict your company’s future financial needs, don’t get caught short-handed. This was a hard lesson taught by the Asian financial crisis of the late 1990s, when credit was scarce and costly even for companies with good credit ratings. As such, even if funding isn’t needed right now, there’s never a better time than the present to plan for your future credit needs.

For one thing, rates may never be this low ever again. That’s why locking in a favorable rate and having long-term credit ready whenever your business experiences cash deficits is a sound idea. It just makes smart business sense to arrange for new money when the market is right, rather than when new money is needed. This action will provide more control over cash flow and capital costs.

Invest Wisely

Perhaps the greatest challenge in a low rate market environment is finding an investment that offers your company security, liquidity and stability. Liquidity funds, available exclusively to corporations, banks and other institutions, deserve consideration for investing idle cash balances. Plus, liquidity funds offer a number of benefits that make them especially attractive in a low-rate economy. Liquidity funds are:

  • Conservative investments with an objective of preserving capital.
  • Rated AAA by Standard & Poor, which indicates they are solid, secure investments.
  • Designed for temporary or medium-term cash investment, seasonal operating cash, automated cash sweeps, and the cash component of investment portfolios.
  • Often available for same-day settlement. That means cash can be obtained on the next business day – an important advantage in the fast-changing market.
  • Available at late cut-off times, which allows for the assessment of actual cash needs throughout the morning and investment later in the day, rather than having to estimate to meet early cut-off times.
This article appeared in Crain's Detroit Business, April 2003. (CO)
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the ManzellaReport.com, is a world-recognized speaker, author of several books, and a nationally syndicated columnist on global business, emerging risks and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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  • Guest (Jull)

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    It's often really not very easy for businesses to increase cash under current economic conditions, but small companies and self-employed may consider http://personalmoneyservice.com/ for some additional means in case of urgent needs.

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