I just read an interesting blog post in the CFO Journal at WSJ about how a majority of Corporate Treasurers are unhappy with upcoming Money Market reforms and are planning to pull cash out of this common short term investment vehicle. US Securities regulators are proposing to initiate some reforms to make Money Market liquidity accounts "sturdier" and avoid some of the hidden risks associated with them. You can read the article for the specific details, but the upshot apparently is that Money Market accounts, long prized for being highly liquid, very secure places to invest short-term cash may be losing their luster.
The problem is, in this risk-filled, low-interest environment, where are they going to put it? There are certainly any number of other short term liquidity investment choices out there that will gladly absorb the soon to be homeless corporate cash, but all of them contain some level of risk, however small, and provide next to nothing in return in this era of 0% short term interest rates. But as one person quoted states: “If you look at the goals of a corporate treasury, it is investing to preserve its capital and maintain liquidity."
Preserve capital...meaning a very safe investment. And Maintaining liquidity...meaning something short term that doesn't tie cash up for very long.
Might I suggest an alternative investment for at least some of that cash? An investment that is both perfectly safe (in fact is 100% risk free) and is short term (30-45 days or whatever their vendor payment terms are), and one that oh, by the way, can earn them anywhere from 8%-24% or more annualized on that cash all while providing much needed liquidity to a critical component of their business...their suppliers.
If you have read my blogs before, you know I am talking about Dynamic Discounting, a technology and service Ariba provides to connect buyers with their suppliers to collaborate over early payment opportunities beneficial to both. In fact, let me invite you to learn more about how one of our customers, Republic Services, is doing just that to earn millions of dollars a year in savings and meeting their suppliers' needs at the same time. They are presenting in a webinar with us on Thursday, March 15..you can check it out and register here.
There just aren't many great opportunities for corporations to put their excess cash to good use in a short tenor investment today. Dynamic Discounting, however is a great investment both for your bottom line, as well as for your suppliers.