Idle cash is lazy money that lies on accounts you cannot use in a centralize manner. In practice, this cash is usually on the local accounts of the subsidiaries, outside of corporate pooling accounts.
Especially large companies may have huge sums of idle cash, and minimizing it can be a great opportunity to optimize your operating assets. The good news is that optimizing idle cash is relatively easy. In this entry, I will give a few hints to effectively put idle cash to work.
Idle cash often accumulates slowly in your organization. Subsidiaries far away from HQ claim accounts in local banks are a necessity to keep local payments running smoothly.
Bank manager may reward the subsidiary CFO with regular golf rounds.
This is often a true observation, but there is a tendency for extra balance to accumulate on these accounts. The subsidiary does not want to give up the extra cash as they claim larger payments may be coming. Unfortunately, the true reason is often the bank manager rewarding the subsidiary CFO with regular golf rounds for keeping the balance in the bank.
First of all, create guidelines for idle cash and make them a part of your company’s financial policy. These guidelines need to be concrete and crystal clear so that all subsidiaries understand them. It is important to recruit visible senior management support for the guidelines. A foreword from the CFO on the front page of the policy document is a good way to squash potential opposition.
Next, find out whether you can effectively pool these accounts with your corporate accounts or replace these accounts with corporate accounts. This way you gain access to the account balances and the subsidiary would still have sufficient liquidity.
If your company utilizes internal netting in payments, you can also take advantage of that. You can require the balance of all accounts outside of corporate accounts to be deposited with the treasury minus outgoing payments during the netting cycle.
Cash forecasting helps you control the amount of idle cash in your company. To achieve this, however, you need a system that has features for monitoring account balances globally. Furthermore, the application needs to be able to differentiate liquidity on pooling accounts from liquidity outside them.
With these features you can monitor the forecasted cash flows on a per-account basis and manage your liquidity precisely.