Banking and Finance
Funds management
Smart Business Dallas | November 2008
Trish Herskovitz
Vice president of treasury management
Capital One Bank
Being proactive in your funds management can lead to greater profitability.
Computer technology has created significant conveniences for businesses
these days. Whether it’s mining consumer data, balancing the books, or aggregating and interpreting financial data, companies have realized great efficiency gains
that have enabled them to put more energy
toward growing their bottom lines.
A sweep service is one product born out
of advanced computer technology. It basically automates and simplifies cash management, says Trish Herskovitz, vice president of treasury management for Capital
One Bank in Dallas, because a business no
longer has to monitor daily balances and
then manually initiate either a line-of-credit payment or investment.
Smart Business spoke with Herskovitz
about the advantages of a sweep service
and how it helps a business become more
efficient and productive.
What is a sweep service, and why should
businesses take advantage of it?
You don’t want your cash sitting idly in a
business checking account, earning little
or no interest. Businesses today can take
advantage of an automatic sweep service
that automatically invests their idle balances overnight. All debits and credits
posting to a business’s account are automatically considered when determining
daily excess collected funds available.
Excess collected funds are invested
overnight and automatically credited to an
account the next business day. Interest is
compounded daily.
Is the same service available for loans?
Yes. With a loan sweep service, businesses can automatically apply excess cash
toward paying off loans. An automatic
draw from a business’s line of credit occurs
as needed to cover daily clearings. Excess
collected balances in the account are used
to pay down a line of credit. If the line of
credit is fully paid, excess collected funds
can be automatically invested. For example, a client could have $100,000 in excess
funds and a $40,000 line-of-credit balance.
The line-of-credit balance would be paid
down first, and the remaining $60,000
would automatically be invested.
To utilize the line-of-credit sweep option,
the line of credit typically has to be a stand-alone, revolving line of credit with no processing restrictions. Also, any amount of
excess collected funds can be used to pay
down a line-of-credit balance. However, an
average daily minimum of $50,000 in
excess collected funds is usually required
for the investment option. This average
minimum helps ensure that the investment
earnings offset the cost of the monthly
service fee.
Two overnight investment options
include repurchase agreements, which are
secured, collateralized investments with a
lower return, and eurodollars, which are
unsecured but backed by the full faith and
credit of the bank, earning a better rate
with lower monthly maintenance fees.
Can a sweep service combine funds from
multiple accounts?
Yes. Excess funds from several different
accounts can be combined to gain the benefit of higher interest rates without com-mingling funds. Balances in each related
sweep investment account are totaled in
order to determine the rate of interest to be
applied to each individual investment. The
excess funds from each account, however,
will sweep into separate investments, with
the principal and the interest returned to
the respective accounts the next day. This
way, clients are able to invest excess funds
at the most advantageous rate without
commingling funds from different
accounts, which makes for easier account
reconciliation.
How does this type of service help a company?
Daily cash management goes on autopilot, freeing businesses up to do other treasury tasks. Also, it helps a company maximize its earnings by applying idle funds to
an overnight investment or reduce interest
expense on its line of credit. A business is
also able to manage cash more efficiently
by automating the transfer of its excess
balance.
How can a business keep track of all these
transactions?
Daily sweep transaction reports are available through online banking services for
businesses, which offer balance reporting
and transaction initiation.
These services can also offer a ‘positive
pay’ type reconciliation service designed to
fight check fraud. This is in addition to balance reporting, information reporting,
transaction processing, automated clearing house origination, information download, product information, maintenance
and online help. Monthly statements can
provide a summary of daily activity for
easy account reconciliation.
Clients can also arrange to have a minimum balance remain in their checking
accounts after any sweep of funds in order
to offset any maintenance fees.
TRISH HERSKOVITZ is vice president of treasury management for Capital One Bank in Dallas. Reach her at (972) 855-3945 or
trish.herskovitz@capitalonebank.com.
