Written By: Jennifer Tomaino, Head of Treasury Services, Union Savings Bank
Having the right bank account to efficiently manage day-to-day finances is critical to successfully running your business day-to-day. It’s why many small business owners opt for the convenience and benefits of a cash management account.
A cash management account is a type of bank account that combines the best of checking and the best of savings accounts into a single account – while often adding additional features that help you make the most of your cash on hand.
Think of your cash management account as a central hub for all of the cash in your business. It can cover disbursements to all of your other accounts, acting as an operating account for all transactions. Any and all income your business receives can be deposited into your cash management account, and from there, the money can be transferred to where it will be most useful. And once you’re fully set up, it can happen automatically. It’s all about making the most of the cash that you have and optimizing the way you are using your money. Here’s how:
Additional Profit Opportunities
One of the biggest ways an account like this can optimize your use of cash is through sweeps to connected accounts, where you can either earn more cash through an interest-bearing account or pay down a business line of credit and avoid interest costs. When you have sweeps set up, these transfers can happen automatically every night, so your money is working as hard as it can. Efficiency like this can really have an effect on your bottom line by turning idle cash into additional profits.
Automatic Transfers When You Need It
In addition to profit opportunities, a cash management account can be incredibly convenient because of the varied features you can attach to this “centralized hub.” You can create and attach, for example, a zero-balance account for payroll – so that excess funds never linger in your payroll account. The money is transferred automatically only when needed, maximizing your ability to earn cash on hand. This practice can be repeated across other recurring account needs in other parts of your business as well, such as equipment loans.
Other convenience features can include ACH transfers and payments, wire services, remote deposit, international wire services, and automated fraud protection services. They all add up to an account that can provide a terrific one-stop barometer of the cash available in your business at any moment. You might ask, what size business do I need to have in order to have an account like this? There are usually fees associated with all these services and automatic features, and they can usually be offset by keeping a minimum balance in a cash management account. The value of these services is the additional time and savings they offer the account owner. Automation allows you and your staff to focus on your area of expertise – your business.
Better Manage High and Low Seasons
Finally, a cash management account makes it easy and automatic to manage shortfalls and surpluses in cash flow. As touched on earlier, when your account is linked to a business line of credit and/or an interest-earning account, excess funds are first directed to pay down the line of credit and then on to the interest-earning account. And in the case of shortfalls, funds are automatically made available from your business line of credit. This is a tremendously valuable service for businesses with high and low seasons.
If you have a business that is the least bit financially complex, you will likely benefit from having a cash management account as the hub of your finances. A meeting with experts at your local bank can help you determine what type of arrangement will work for you and help you identify the services that will simplify your financial life so that you can concentrate on your business.