Maximizing Corporate Cash Returns: A Guide to Multi-Bank Interest Rate Optimization

Maximizing Corporate Cash Returns: A Guide to simply automating and enhancing interest rate outcomes

We have always advocated for bank diversification for reasons we set out in a separate post (linked here). 

So when your company is a multi-banked company (those using multiple banking partners), how can you maximize corporate cash returns from cash at bank? Some suggestions are below, and these include implementing a combination of liquidity management strategies, banking optimization, and technology-driven solutions. Here’s a structured approach:

1. Centralized Cash Visibility & Pooling

- Cash Concentration: -Use notional pooling- (virtual aggregation of balances across banks without physical transfers) to consolidate funds into a master account, minimizing idle balances.

- Treasury Management System (TMS)-: Deploy a TMS or multi-bank portal (e.g., Kyriba, GTreasury, SAP Treasury, Tesorio) to get real-time visibility across all bank accounts, enabling better liquidity decisions.

2. Banking Structure and relationship

- Right-Sizing Bank Relationships:- Rationalize the number of banks to reduce fees while maintaining diversification for risk mitigation.

-Enhance and maintain bank relationsips-This is the hidden secret that many larger companies use is the strategic bank relationships to enesure a solid mutually beneficial outcome. But remember that something like price discovery is a tactical function, intended to maintain competitive pricing.

- Price Discovery-Negotiate Better Terms: -Leverage multi-bank relationships to negotiate improved interest rates (on deposits) using platforms such as Likwidity, lower transaction fees, or preferential lending terms.

3. Dynamic Liquidity Management

- Automated Sweeping: -Set up automated sweeps to move excess cash into higher-yield accounts or investment vehicles overnight.

- Cross-Currency Netting: -For global operations, net intercompany payables/receivables to reduce FX costs and minimize cross-border cash movements.

4. Invest Idle Cash Efficiently

- Short-Term Instruments: -Park surplus cash in appropriate intsrument, including T-Bills, high yield Bank deposits, money market funds (MMFs), commercial paper, or ultra-short-duration bonds.

- Bank Deposits: -Utilize Time Deposits (such as CDs) or FDIC-insured sweep accounts for safety and yield.

- Yield Optimization: Use dynamic discounting - (early payment discounts) or supply chain financing to earn returns on cash.

5. Risk Mitigation

- Diversify Counterparties: Spread deposits across multiple banks to stay under insured limits (e.g., FDIC, NCUA).

6. In-house banking for Group companies

- Cross border price discovery: Optimize cross-border cash flows using in-house banks and price discovery to maximize cash yields

- Interest Optimization: Ensure cash is held in jurisdictions with favorable tax treatment.

-White-label platform- Use white house platform to aggregate/notionally pool group cash for better rates (such as Likwidity)

How to implement such a setup

1. Audit Current Banking Setup: Identify redundant accounts, fees, and idle balances.

2. Determine overall requirements, whether a TMS or specific tools dependent on requirement

3. Evaluate a Sweeping/Pooling arrangement: Start with one region/currency before scaling.

4. Benchmark Banks: Compare pricing and services to optimize partnerships.

By combining these strategies, multi-banked companies can enhance yield, reduce costs, and maintain liquidity resilience. Lets discuss further.