BUSINESSES CAN BENEFIT FROM LEVERAGING CASH MANAGEMENT STRATEGIES

A 2021 Global Treasury Survey Report by PricewaterhouseCoopers revealed that most Chief Financial Officers (CFOs) are prioritising cash management solutions to optimise their cash and earn real returns. They rated cash management and liquidity as the second-highest priority, second only to funding. The report notes that they are “seizing the strategic opportunity”.

Bianca Botes, Director at Citadel Global, explains that businesses should leverage cash management strategies to their benefit, particularly during times of volatility and rising interest rates.

Botes is answering some frequently asked questions regarding cash management solutions for businesses below.

YOUR CASH MANAGEMENT QUESTIONS ANSWERED BY AN EXPERT:

1. WHY DOES MY BUSINESS REQUIRE A CASH MANAGEMENT SOLUTION?

Too many businesses have their cash reserves deposited in non-interest earning, current accounts. While these allow easy access to cash, they do not maximise returns like a more strategic cash exposure can. An intentional cash management approach maximises the returns on cash while still considering and, more importantly, minimalising the tax consequences of sound cash solutions.

WHAT SHOULD I LOOK FOR IN A CASH MANAGEMENT OFFERING?

When seeking a cash management partner, research which companies can offer your business the best cash portfolio and always read the fine print. You ideally wish to find one that considers many key aspects that will make a tangible difference to your returns, such as the rate at which interest will be taxed, etc.

For example, Citadel Global offers businesses a cash portfolio that includes term and notice accounts, interest-bearing income funds with instant access to cash, and preference share funds, where interest will not be taxed at corporate tax rates.

1. I RUN A SMALL BUSINESS. SHOULD I LOOK INTO THIS AND AM I ELIGIBLE FOR THIS OFFERING?

Cash management is not dependent on the size of your business, but rather on your cash on hand, and your cash flow cycles. The Citadel Global Cash Management solution is specifically designed for medium to large-sized businesses. Although we do not stipulate the size of business that can transact using this service, to maximise its value from an earnings point of view, a business must have at least R500,000 in available cash.

1. HOW CAN I START THE PROCESS?

An essential part of getting started is meeting with your prospective cash management partner so that they can gain an understanding of your business’ short-, medium-, and long-term cash flow needs.

Ultimately, we are looking to understand your cash flow cycles to determine the best possible strategy that aligns with your cash holdings.

1. HOW CAN MY CASH EXPOSURE BE MANAGED EFFICIENTLY ON AN ONGOING BASIS?

Just as your business is unique and adaptable, your cash needs should be too. Seek out a partner who will create a bespoke cash management solution specific to your business’s ongoing needs. Cash portfolio adaptability is crucial and so too is open communication with your partner.

When it comes to Citadel Global’s cash portfolios, there is never a ‘one-size-fits-all’ approach. Your specialist would recommend quarterly reviews to ensure the business circumstances have not changed. One thing the last two years have shown us is that nothing is predictable, and businesses that can adjust and pivot are the ones that thrive. Citadel Global can help you adapt your cash management to ensure it weathers economic storms.

1. I HAVE R10 MILLION IN THE BANK, BUT IT IS A REVOLVING BALANCE USED TO COVER MY PAYROLL AND TAX COMMITMENTS. CAN I EARN MORE ON THAT MONEY?

While long-term solutions earn better interest, working capital can still earn sizeable amounts of interest. To do this, your working capital must be assessed and, depending on how frequently cash is required (be it weekly, monthly, or quarterly), your cash should be managed in the most appropriate manner so you can access your cash when you need to.

A good, comprehensive strategy will ensure that your company’s cash earns more interest than simply depositing it into your business’s current account, where interest is typically close to zero.

1. WHAT ABOUT THE VOLATILE RAND?

With the rand being a commodity-driven currency, the best protection against currency volatility is to store your money in a more stable international currency. Yet, South African legislation does not allow corporate cash to be passively invested offshore. However, for a longer-term cash investment, your specialist should consider an asset swap solution to ensure your cash is protected in volatile economic times.

1. WHY SHOULD I USE A SPECIALIST AND NOT INVEST CASH MYSELF?

Of course, a business can manage its own cash. However, cash management is a time-consuming activity, and to get the best returns, it requires a sound understanding of financial markets. With the help and guidance from specialists, you can focus on the daily running of your business knowing that you are likely getting the best returns.

Managing increasingly complex foreign exchange transactions and exposures requires both a keen understanding of currency risk and a sound and effective cash flow and corporate cash management approach, which expands as your needs change. Citadel Global’s expert advice and Cash Management solution for businesses empower your cash to earn optimal returns.

Written by: Director at Citadel Global, Bianca Botes