Treasury Basics for Operating Companies: Insurance Limits, Sweeps and Idle Cash
Once your balance exceeds deposit insurance limits, holding cash becomes a policy decision. A practical framework for structuring operating, reserve and yield accounts.
Most companies run a single operating account until an event forces a rethink — a bank scare, an auditor question, or a treasurer noticing six figures earning nothing. A basic treasury policy takes an afternoon to write and removes both risks.
Three buckets
- Operating — 1 to 2 months of outflows in the primary bank, fully liquid, tied to payroll and AP.
- Reserve — 3 to 6 months, held where deposit insurance or sweep arrangements cover the balance, accessible same or next day.
- Strategic — anything beyond reserve, invested against a documented policy with a maturity ladder matched to known obligations such as tax payments.
Deposit insurance and sweeps
Insurance limits apply per depositor, per insured institution, per ownership category. Balances above the limit are an unsecured claim on the bank. Common structures to manage this: a network deposit sweep that spreads balances across many insured institutions, a second banking relationship at a different institution, or government money-market funds held in a brokerage account — legally different from a deposit, with its own risks.
Write the policy down
A one-page policy that names the approved instruments, maximum maturity, minimum liquidity and who may authorise a transfer solves the audit question and the 2am question at once. Include dual approval for outbound payments above a threshold and a rule that no counterparty holds more than a stated share of total cash.
Operational controls worth the effort
- Separate accounts for payroll and tax remittance, funded on a schedule.
- Positive pay or equivalent fraud controls on cheques and ACH debits.
- Named backup signatories — single-signatory accounts are a continuity risk.
- A quarterly review of yield versus liquidity; rates move faster than policies.
Cost of getting it wrong
Idle cash is the visible cost. The invisible one is concentration: a company with one bank, one signatory and no documented policy can lose access to payroll for days over an event it did not cause.
General business information, not investment or banking advice.
Fin Tomorrow publishes general information only. Nothing here is personalised financial, tax or legal advice.
