Cash Management Solutions for High Liquidity Requirements

When people talk about timescales of investing they generally think about 5 year, 10 year and retirement plans. While these are certainly the most common, there are other areas that your investment advisor can assist you with that pertain to timescales of months or even weeks. We were recently approached by one of our customers to assist them with their cash management planning. As payday lenders they face weekly, bi-weekly, semi-monthly and monthly cycles that leave them with varying levels of cash in a relatively unpredictable environment. Even so, like all businesses, they wanted to get their money working for them whenever possible yet were unable to use traditional methods such as stocks due to their liquidity concerns. These are some of the options available to investors seeking high liquidity.

High Interest accounts

Most banks offer some form of electronic-only high interest accounts. For example, RBC offers a High Interest eSavings account that pays 1.100% and HSBC offers a High Rate savings account paying between 0.70% and 1.20%. This is the ultimate in liquidity, while offering relatively low return. This is a reasonable option for holding operational cash on a weekly basis.

Guaranteed Investment Certificate

When the funds are not needed for a month or longer, most Canadian banks offer GICs for terms as low as one month. This can be effectively employed when dealing with seasonal cashflow variances. The interest rates are typically low but provide substantial liquidity.

Repurchase Agreement

For substantial sums of money, repurchase agreements (often called repos) offer access to the stock and bond markets for extremely short periods of time. The owner of a stock agrees to sell that stock to another party along with the guarantee to purchase the stock back at a specified price at a specified time. The size of the repo market is well over $10 trillion, providing ample opportunity for aggressive cash management.

Credit lines

When the average amount of available cash is substantial but the low points go close to zero it can be a good idea to use a line of credit to finance the infrequent low periods of the month while maintaining longer term, higher paying investments. The downside of paying high rates of interest for one week out of four are easily counterbalanced by earning high rates of interest for the other three.

By using a combination of these methods we have been able to provide stable cash management solutions that minimize risk while maximizing return and liquidity. While our strategies in this case have been tailored for the payday loan industry, the concepts can be applied to any business model. Contact us for more information on how we can help your business put your money to work for you.