This article is written by our content partner, Nilus
Following the SVB and Credit Suisse fallouts, the risk of keeping your cash in one bank has risen to the forefront. Companies, both small and large, have shifted to multiple banks in order to keep their cash safer.
Unfortunately, managing cash across multiple banks is a real challenge. While larger enterprises spend years building treasury management systems to address this, earlier-stage companies can struggle with the extra load. Now, instead of having one place in which to manage liquidity and burn rate, finance teams need to constantly log into and monitor multiple banks to stay on top of their cash. And then pull reports, parse them, and compile them to analyze the data.
While multi-bank is definitely the way to go for scaling businesses, it matters how you do so. Without clear visibility or cash management processes in place, it becomes a real challenge to answer key questions around liquidity, burn rate, and cash flow performance.This makes it harder to optimize cash efficiently, forecast future cash flow, and understand your liabilities and risk. As you grow, this challenge only scales with you, with stakeholders demanding this information on a consistent basis.
3 keys to multi-bank cash management
At a high level, the keys to proper cash management are understanding where your money is, what it’s doing, and how risky it is.
Where is your money?
The most common challenge companies face when it comes to cash management is getting complete visibility in real time—especially when it sits across multiple banks, accounts, entities, and currencies. When you work across multiple banks, you have to log into multiple platforms just to know where your cash is. Apart from being time-consuming and tedious, this means you will only be able to see where all of your cash is after manually pulling and compiling this data across accounts. Many companies operating in multi-bank environments can’t get a daily or weekly view into this most basic question, instead waiting for end-of-month reporting to see it.
The second challenge is data integrity—making sure your data is actually correct. Pulling data manually leads to inevitable manual error, meaning that you’ll have to double-check numbers to make sure the data is accurate. You’ll want to make sure you have matching data for opening and ending balances, transactions that net your balance, and reconcile transactions to know that there are no errors in your data.
Companies that require more visibility will often build in-house solutions to pull this data automatically, but maintaining these solutions is a struggle. Data integrity becomes a consistent challenge here, as you need to verify that the data matches the data in your bank.
What is your money doing?
Even when dealing with one account, it’s hard to know what your money is doing for you. As you scale accounts, understanding where your money is coming from or going becomes even harder. Identifying and mapping transactions takes a lot of time and effort, so you’ll either spend a lot of time on it or have tons of errors.
Generally, finance leaders will define the purposes or natures of each account—whether it’s a corporate account, for client funds, or interest-bearing, for example. Ensuring these accounts are used properly is challenging but essential to cash management.
Additionally, optimizing liquidity across these accounts is essential. You’ll need to make sure you not only meet minimum or maximum limits for each account but also ensure they have the optimal level of liquidity for that account type. As you scale across banks, regulatory needs also come into play, especially in industries like fintech, marketplaces, and SaaS. You’ll need to ensure that you meet the regulatory requirements for each geo and bank.
Finally, you’ll want to optimize for interest by asking if your money is working for you. Do you have the optimal amount of cash in interest-bearing accounts, or is your cash just sitting there? For very early-stage companies, this won’t be a major issue, but as you scale, you don’t want too much cash to be inactive.
How risky is your money?
After the SVB fallout, the importance of evaluating counterparty risk is obvious, but with fluctuating FX rates, understanding your currency risk is also essential. Once you know where your money is and what it’s doing, you’ll now want to optimize for risk.
There are many ways to evaluate counterparty risk, with Moody’s being the most commonly leveraged, though many companies choose to evaluate it internally. You’ll need to ensure that you don’t exceed insured maximums for certain banks, especially those with high risk.
Optimizing for FX rates is a real challenge across banks, as you’ll need currency visibility across accounts. After compiling this data, you’ll want to compare it to FX rates and ensure your cash isn’t too volatile and that you limit your currency risk as much as possible.
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