Managing risk is important when running a business. However, there are still cases when problems may occur unexpectedly that can affect the finances of your business. Because of this, it is imperative for business owners to opt for liquidity management solutions.
Liquidity management is a method where of investors or managers make efforts to reduce liquidity risk exposure. Surely, you may find numerous options that can match your business needs. But, to ensure that you can make liquidity management solutions more efficient, it is best for business owners to include pooling and sweeping in their solutions. To know more, below is a list of the benefits of pooling and sweeping in your liquidity management solutions.
A cash pool is a banking structure which allows the balances on a number of separate accounts to be treated collectively. With the use of a cash pool, companies can improve its liquidity management, while total cash balances are managed centrally rather than locally. As of now, there are numerous types of cash pools. These include the following:
- Physical pooling/Cash concentration
- Notional pooling
- Single legal account pooling
- Reference account structures
- Multicurrency pooling
As of now, notional Pooling delivers better benefits for your liquidity management solutions since it can provide such benefits.
Single liquidity position – Notional pooling allows each subsidiary company to benefit from a single, centralized liquidity position. Apart from this, companies can still retain daily cash management privileges.
Local allocation of interest income – With the use of notional pooling, each account in the pool receives an allocation of interest income.
No inter-company loans – Notional pooling helps business owners to avoid the use of cash transfers to a central pooling account.
Short-term commitment – This method does not require a long-term commitment with a bank. Plus, it is relatively easy to back out of the arrangement.
With regard to sweeping, it enables business owners to concentrate all their cash into one account. Because of this, business owners can earn interest on that overall balance or pay interest on any residual borrowing outstanding on your current account. Some benefits business owners may obtain when using sweeping in their liquidity management solutions are:
Minimum investments – Sweeping method allows a business to invest smaller dollar amounts on a regular basis.
Convenience – Sweeping method is a passive investment vehicle, which can automatically move extra cash into an investment account without requiring you to make the transfer yourself.
Liquidity – Sweeping method offers same-day access to the invested funds.
Knowing all these can help business owners make sure that they can make their business better and more financially stable. Know more about liquidity management solutions on this site.