How Treasurers can Generate Higher Yields on Idle Cash with Increased Cash Visibility

Written by Jason Mountford
March 29, 2024

There’s been a lot written about 2024 being the ‘Year of Efficiency.’ While everyone has latched onto the term from Mark Zuckerberg and Meta’s strategy, the economic backdrop means that many (most?) businesses are taking a similar approach to their financial management right now.

Demand is fluctuating across many sectors and high interest rates mean that funding is harder to come by for growth stage companies. Not to mention the complex geo-political situation which is having a practical impact through global supply chain disruptions.

For many, efficiency means cost cuts and layoffs. And while we can’t ignore the fact that many companies have had to take this approach, it doesn’t mean it’s the only way to improve or maintain profitability in a difficult economic environment.

This is also true for treasurers seeking to drive growth while managing high interest rates. While the traditional approach to cash management has been to hold a defensive position to maintain liquidity and reduce risk, modern treasurers can now leverage data and technology to do this, and improve income at the same time.

In this article, we’re going to show you how. 

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Traditional Cash Management – Cash as Defensive Liquidity

Obviously, the fundamental role of corporate treasury is to ensure a company maintains access to the cash they need. While that can seem like a relatively simple task on the surface, those in the know understand that it’s far more difficult in practice.

Not only do treasury teams need to always understand a company’s current cash position, but also how that cash position is likely to change over time. Forecasting is hugely important, to ensure that any potential future cash flow issues are identified and planned for ahead of time. The complexity of this process grows exponentially for multi-national and multi-entity companies, where it can be difficult to even gain an overview of the overall and underlying cash positions of each business unit.

Because forecasts are always based on assumptions, treasury’s strategy often leans towards the defensive. Holding additional cash means a greater buffer against cash flow issues, which improves risk management.

Sometimes, it’s also simply a default position due to lack of transparency. If a parent entity can’t easily see the individual cash holdings for each of its sub-entities or related companies, treasurers can’t identify areas of surplus without a significant amount of manual data consolidation. This takes time and introduces the potential for errors, cutting into any efficiency gains to be had from utilizing the cash better.

This defensive role shouldn’t ever be compromised. However, modern tech solutions can enable treasurers to be able to maintain the right risk management strategy, while also generating additional revenue through improved cash yield. 

Simply put, the right data and analytics can unlock significant value through the identification of underutilized assets, without taking on additional risk. 

Managing High Interest Rates – Cash as Defensive Liquidity and a Growth Lever 

One of the benefits of rising interest rates is that yields on cash are better than they’ve been in years. But of course, not all cash accounts are equal. Many standard corporate accounts are still offering next to nothing in terms of yield.

In recent years, this hasn’t been an issue worth looking too closely at. If a standard bank account pays interest of 0.75%, and a money market fund or high yield account pays 1.5%, the difference isn’t necessarily worth the hassle.

But now, money market funds and high yield accounts can offer yields of over 4%, sometimes even above 5%, with no additional risk. At the same time, regular corporate checking accounts are not designed to generate substantial yield, with many of their rates remaining relatively unchanged.

That’s why it’s not surprising that a recent Treasury Management International survey found that 73% of treasurers have invested in or plan to invest in money market funds with stable net asset value.

Take a company with $5m in total cash, for example. Shifting that cash from an average yield of 1% to an average yield of 4.5%, could generate additional income of $175,000 a year. Essentially for nothing. 

For a large company like Trovata customer Krispy Kreme, with cash of over $38m at the end of 2023, that can add millions to the bottom line.  

That’s a direct, tangible improvement in profitability, with no additional risk, all while still retaining liquidity and maintaining a defensive cash buffer.   

How to Maximize Cash Yield While Maintaining Liquidity

We’ve covered the broad strokes so far. Getting better yields on cash is possible again, and taking advantage of it can improve efficiency and allow treasurers to help directly improve profitability.

But how does that work in practice?

It all comes down to visibility and transparency. The traditional cash management process involves a high level of manual data manipulation. Cash figures are manually compiled using multiple spreadsheets, or through a legacy TMS, with the limitations of those platforms requiring significant spreadsheet involvement anyway.

All that boils down to substantial amounts of time and resources being used to simply gather the raw data, leaving less time to work on strategic decision making (such as assessing ways to improve cash yields).

In many cases, the manual nature of this process doesn’t just mean more time to gather the right data, sometimes it means not gathering the data at all. McKenzie Knudson, Senior Treasury Analyst at Sealaska Corporation, summarizes this exact pain point for treasury operations.

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Strategic Cash Yield Enhancement Enabled Through Open Banking APIs

This has all changed through the use of open banking APIs. Modern treasury platforms like Trovata can now act as a single source of truth for all your cash accounts, across every part of your business.

APIs feed the cash balances directly into the platform, meaning they are always up to date and always 100% accurate. There’s no transcription or consolidation of data, it simply provides a mirror of what your banking portal shows.

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That seemingly small piece of technology offers the potential to completely overhaul treasury operations. There’s now no time required to gather a consolidated overview of a company’s cash position. It’s simply there. 100% accurate, at all times.

This then shifts the day to day role to a more strategic focus. Speaking directly to yield, treasury teams can now easily see areas where cash isn’t being utilized effectively. Perhaps there’s a large amount of cash accumulating in an account with 0% APY. This can now be immediately identified, and alternatives sought.

Centralized Cash Strategy Implementation

But the benefits of this technology don’t just end at greater visibility. Through direct connectivity with your banking portals, it’s possible to facilitate payments and transfers as well. Now not only are treasury teams able to spot ways to improve yields, they can then process the cash movements in the same place.

This makes it far easier to practically manage the movement of cash, by removing the need to log in and transact across multiple banking portals.

And when it comes to forecasting, this centralized bank of cash data can then be used to create more accurate and detailed models, better informing cash management decisions going forward.

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In short, modern treasury technology provides an all-in-one solution that allows treasury teams to free up time for strategic analysis, improve visibility, data transparency and forecasting to inform those strategic decisions, and then offers the tools to practical implement them.   

How Trovata Helps Improve Cash Visibility and Yield

Trovata’s all in one treasury technology platform offers all of this and more to modern treasury teams. The implementation of open banking APIs creates a centralized data lake for all of a company’s cash holdings, but also down to granular transaction data for every part of the business.

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Combining this data lake with powerful tagging and search capabilities, gives treasury teams the ability to analyze and dissect their data in more detail, and easier than ever. 

When it comes to improving cash yields, Trovata takes things a step further. While the strategic analysis outlined in this article can highlight underutilized cash, finding alternatives requires additional time and market research.

Treasury teams need to understand the alternatives available on the market, review the liquidity profiles and understand any costs or limitations in allocating capital to them. With Trovata, that entire process can be streamlined directly in the cash management platform through our partnership with JPMorgan.

managing high interest rates

Morgan Money is a corporate investing and trading solution, and joint customers can now determine their liquidity needs using Trovata, then take action to invest seamlessly using the services offered by Morgan Money.

Users will have the ability to transact across their global portfolio in real time and compare funds across multiple managers, currencies, durations, or settlement options.

These capabilities position Trovata as a treasury solution that can add significant income to your bottom line, within days of onboarding. If you’d like to learn more about how Trovata could transform your treasury operations, book a demo today.

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