What is a benefit of employing a cash management "sweep" strategy?

What is a benefit of employing a cash management "sweep" strategy?

• A. It increases fixed asset investments
• B. It helps in better utilization of excess cash
• C. It decreases operational efficiency
• D. It restricts access to cash reserves

Answer: (B)

Employing a cash management "sweep" strategy is beneficial because it helps in better utilization of excess cash. This strategy involves automatically moving, or “sweeping,” excess funds from a company's transactional accounts into higher-interest-earning accounts at the end of each business day. By doing so, the organization maximizes the return on its available cash without losing access to funds needed for daily operations. This approach ensures that any cash that is not immediately needed is working harder for the company, typically in interest-bearing accounts, thus enhancing liquidity management and overall financial performance. Effective cash management helps to optimize cash flow, ensuring that funds are available for investments and operational needs while also generating additional income through interest. Thus, the sweep strategy effectively balances the need for liquidity with the desire to earn returns on idle cash, making it a valuable tool in cash management practices.

Employing a cash management "sweep" strategy is beneficial because it helps in better utilization of excess cash. This strategy involves automatically moving, or “sweeping,” excess funds from a company's transactional accounts into higher-interest-earning accounts at the end of each business day. By doing so, the organization maximizes the return on its available cash without losing access to funds needed for daily operations.

This approach ensures that any cash that is not immediately needed is working harder for the company, typically in interest-bearing accounts, thus enhancing liquidity management and overall financial performance. Effective cash management helps to optimize cash flow, ensuring that funds are available for investments and operational needs while also generating additional income through interest.

Thus, the sweep strategy effectively balances the need for liquidity with the desire to earn returns on idle cash, making it a valuable tool in cash management practices.