How should we invest our short-term cash balances?

Careful management of short-term cash balances can add to an organization's current income and provide the basis for an investment program which will benefit the organization in the future. Even small balances can be invested to earn some interest. Organizations with significant assets to invest should consider the services of a portfolio manager, a finance professional at a brokerage firm, bank, or other financial institution. Frequently a member of your board can provide advice on how to invest or where to seek help.

The investment of funds in the short-term is one aspect of short-term cash flow planning and cash management. As part of the annual budget process you will want to determine as accurately as possible the amount of cash inflow and cash outflows, as well as their timing. The cash flow budget should give you a good idea of when you will have surplus cash to invest.

Generally speaking, the longer funds can be committed to an investment the higher the percentage return will be (assuming the same amount of risk.) For example, cash balances in a checking account may earn little or no interest while cash invested in a risk-free six month treasury bill can yield significant interest. Therefore, it is to your advantage to identify cash which may be invested for a longer time once you have determined your cash needs and are confident that they are covered.