Over the last two weeks, I have had conversations with two different finance committees to discuss their liquidity and cash flow needs.

The conversations varied. One group saw their operating cash and reserves just as it is: “cash.” They keep their cash completely liquid so they have it available at all times, even if their cash flow numbers show that there will be no need for all of their cash for several years. Their idea is to just keep it safe and liquid.

Another group saw their cash as an investment opportunity with the ability to invest in mutual funds and long-term bonds, which could yield them over 3.0%. Though safety and liquidity were a concern, yield was their greatest priority.

I sat and listened in both cases and then they asked for my opinion. I think both groups were surprised with my answer: “cash is cash, which needs to be safe and liquid, but should be considered an income-producing asset that needs to be proactively managed with discipline and care.”

There’s a fine balance between having the safety and liquidity you need and achieving the yield you want.

Safety comes not just by following rules and regulations (externally or internally)—it also depends on your bank relationship. The more you communicate with your banker(s), the greater peace of mind on both sides of the relationship, while still staying current on all cash/deposit regulations.

Liquidity is defining the time value of your cash. This is where cash can become an asset while adhering to all principles of safety.

Yield is where you realize the value of your cash and its worth to your banks and the marketplace.

Consider this before and after scenario:

Before:
If you just sit on your cash, the “real” rate of return on your bank deposit ranges from a negative to a slight positive percentage return.

After:
An actively managed cash strategy with a percentage mix of bank deposit products, state pool options, and a BDIA will produce yields in the range of .40% to 1.00%+.

Both scenarios are safe and liquid, but yields are significantly different. The “before” scenario is cash being considered only as cash. The “after” scenario views cash as a performing asset.

At three+one, we can quantify your entity’s liquidity time/value and give your financial provider(s) the liquidity data they need. Our innovative, proven process is the link between safety, liquidity, and yield. Our data creates greater value on your cash and can turn it from a non-performing asset into immediate revenue to your bottom line.

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We hope to see you at some upcoming events:

GFOA Annual Conference of The United States in Canada in May
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Have any questions or comments for the author? Reach out below!

Joseph Rulison
CEO and Co-Founder