Your Liquidity

In challenging market conditions, with liquidity a major issue worldwide, businesses of all sizes are acutely aware of the importance of ready access to cash. Having money in the right place at the right time, and being able to ensure you can meet your organisation's requirements for finance, both planned and unplanned, is critical to both success and survival.

At NatWest we specialise in helping customers identify and manage their short, medium and long term cash requirements. Every business knows that unexpected demands on resources can occur whatever the economic cycle. So having immediate or short term access to funds is critical.

However, keeping excessive amounts of capital on short term call "just in case" is not good financial management, as it costs you money in terms of lost interest that the surplus cash could have been earning.

So how can you ensure that your money is working harder, whilst maintaining a level of flexibility in order to respond to unforeseen change?

Organising your cashflow

First, you should examine in detail your organisation's operating or trading money, dividing the total sum available into three "pots", targeted at short term, medium term and longer term needs.

This exercise will help to identify money that can be tied up for specific periods and so can be put to work potentially earning higher rates of interest.

Key to this analysis is the fact that interest rates tend to improve when money can be left for three to six months or longer. There are some exceptions to this rule, since the 'yield curve', which is basically a graph of interest rates against time, can sometimes flatten or even go down as we push further out in time.

Long term rates for US Treasury bills, for example, recently surprised the market by dipping into negative rates. Again, consideration should be given to finding the best balance between access to your money and achieving the best available interest.

In this context short term funds can mean really short term, such as overnight. NatWest can offer products which enable you to gain access to the overnight money market rate.

Another solution for instant access to cash is a banded account which means that you get incremental increases in the interest rate as you step up the banded balance levels. One of the major benefits this offers is that you do not have to monitor the account constantly in case you are building up too much cash in a low interest bearing account. Because the banded approach increases the interest rate as your cash increases, the system automatically manages your money's ability to work for you.

For clients who know that they can set aside a pool of cash for a longer period, a fixed term bond can be an attractive option. The bond can be for three, six or 12 months and offers a fixed rate of interest. So irrespective of what happens to the Bank of England base rate, you know that you are going to get the agreed rate of return at the close of the period. If you find at the end of the fixed period that the money is still surplus to your requirements, a bonus reward is available if you immediately reinvest those funds.

Managing your funds

We all recognise that in turbulent times, forecasting demand on a company's cash flow is extremely difficult, particularly for owner managers who have so many other matters demanding their attention. And in today's market conditions, analysing and forecasting cash flow requirements is not a one-off activity. Organisations need to be constantly revisiting and reviewing their predicted needs to maximise the return that could be realised on their funds.

One of the great advantages of dealing with NatWest is that it is extremely easy to move money securely from one account to another, ensuring that funds are in the right place. Our internet banking solution Bankline is a very efficient and easy to use service and is ideal for moving money between accounts.

The current low interest rate environment in the UK means that you have to look very closely at where you place your money. However, much the same reasoning applies for euro and dollar denominated accounts as well, so it really pays to take advice in this area.

The 'yield curve', which we touched on earlier, dictates much of what is possible here as far as medium to long term rates are concerned. It plots the relationship between the interest rate, or the cost of borrowing, and the time to maturity of the debt for a particular borrower in a particular currency. One of the key points here is that each currency has its own yield curve and different currencies are often on different interest rates, as set by their central bank. As a global bank, we trade in multiple currencies, which means we can improve the interest rate available to you by taking advantage of differing rates in the currency markets.

Next steps

To find out more about our deposit solutions, and how we can help you make your cash work harder, talk to your relationship manager or visit www.natwest.com/deposits