Cash flow is typically cyclical. During some portions of the month, your net cash position might be positive, but you do not earn any interest on this. You might also have other long-term facilities like vehicle finance or bonds on which you pay interest at a much higher rate than what is earned on positive cash balances.
Net interest cost management refers to managing your interest expense or income and ensuring that you optimise the net expense or income. As an example, you will not place cash in a deposit earning 2% when you can utilise it against a flexi facility and save paying 7.5% interest. This is an annual saving of 5.5% in this regard.
Points to ponder:
- Do your long-term facilities allow for early redemption and subsequent withdrawals?
- Do you have a consolidated view of your cash balances daily?
- What is your cost structure for unused facilities in comparison with foregone interest?
- Does your banking platform facilitate easy transfers between your different accounts and facilities?
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