Managing cash well is vital for the success and sustainability of any charity. Fortunately, there are more choices than ever when it comes to finding the right solutions. Insignis provides a quick overview of the options.
Never has there been greater pressure on charities and those who manage their assets. They are faced with increased regulation, public scrutiny and demand on their services.
This comes at a time of higher competition for funds, a reduced amount of grants available from national and local government and a high interest rate environment.
The primary factor for a successful charity is liquidity. Does the organisation have enough cash to make grants, pay salaries, cover rents and other costs that are part of the ongoing expenditure of managing a charity today?
Careful money management will protect a charity’s funds from misuse so it’s worth spending time on managing it right. A simple solution to working out the correct level of liquidity is to establish the charity’s cash-flow needs and then prepare a written policy covering how long cash may be deposited.
In doing so, there are a few key factors to consider:
The banking environment
There are some considerable differences in how banks accommodate new deposits and some ‘challenger’ banks, for example may offer better rates of interest than the larger high street institutions.
Therefore, charities should investigate the benefits offered by a particular deposit account and consider the rates of interest on offer versus their counterparty risk.
Charities should regularly review accounts to ensure they are getting competitive rates, rather than constantly seeking the highest rate.
Charities should also give serious consideration to which institution to invest with and the maximum amount to be placed in one institution to reduce the risk of lost deposits.
By splitting large deposits between different banking institutions, trustees reduce the risk of large losses due to institutional failure, especially if they are protected by the FSCS.
Another consideration might be the timing of interest payments. For example, whether they are monthly or annual. While interest rates are currently increasing, timing interest payments on large sums may help with cash-flow planning.
Managing your cash
Cash management doesn’t need to be difficult, but it does require care. Good management of a charity’s finances and other assets enables it to succeed in delivering its charitable aims.
Trustees should regularly review their cash management arrangements and the costs and benefits of their charity’s cash accounts to ensure their deposits are protected and that charges and rates of interest are competitive.
A deposit of £650,000 in a bank account with a net interest rate of 0.15% earns £975 a year. With a little extra attention, an interest rate of 4% can be achieved. This an extra £25,000 per annum.
This can also be achieved while reducing risk by using multiple banks with one interface.
For a fundraising charity, this equates to multiple days of a good volunteer with a bucket in a good collecting spot. For a grantmaking charity, this could be an extra grant to further the mission of the charity.
Getting simple cash management right can be very rewarding. It shows the valuable and visible results of a trustee’s commitment to their charity, beneficiaries and supporters.
Fortunately, there’s now more choice than ever when it comes to cost-effective cash management solutions.
If you would like to find out more, please get in touch with our team or visit the Insignis website.