Most business owners — especially those with high deposit balances — would prefer their money work for them to reduce interest expense or improve earning interest. If your business uses a line of credit, reducing the balance can be completed through online banking or by working directly with your banker. While the process may provide some interest savings, the transfers made via online banking, calls to your banker and determining cash position can take time. That’s why it is important to talk more about automation.

The optimal utilization of your funds may be a line of credit sweep account. When connected to your business line of credit account, it covers the gap when funds are insufficient to cover your checks while using any excess funds to pay down your line of credit. These benefits secure against overdrafts (up to your credit limit) to give you the ability to pay back over time and reduce interest expense. This option provides maximum utilization of funds, and the fees are typically lower than standard overdraft fees.

How Sweep Accounts Work

A sweep service is a solution that allows businesses to use their balances to pay down a line of credit and save interest without worrying about the balance in the checking account. Working with a banker, a company sets up a business checking account with an appropriate balance for daily operations. Each night, cash above this balance is automatically swept to pay-down a line of credit, saving interest expense, or the excess funds automatically transfer to an investment account where it can earn interest.

By using a line of credit sweep, cash balances automatically transfer as needed. The automation allows your organization to be in the best cash position, allowing your staff to manage the business more efficiently.

Sweep Account Features & Benefits

The sweep account will minimize interest expense and maximize interest earnings while allowing the company to fund its cash needs. Some of the sweep account benefits include:

Efficiently Utilizing Funds. A sweep account provides a solution to transfer excess funds every business day.

Convenience. Sweeps are automatic, eliminating the need for manual processes by your employees.If you think your organization could benefit from a sweep account, the first step is to reach out to your banker or Treasury Management Specialist. They will work with you to review your account activity to determine whether a sweep account is a beneficial option. Businesses that do implement sweep accounts should continue to monitor the cost/benefit regularly, as account activity and market interest rates change.

Written by Lindsay Meyer

Lindsay is a Cash Management Specialist at Investors Community Bank, assisting clients with their cash management needs. She has a rich history in customer service and business banking, and is committed to understanding customers’ financial needs and recommending the best products and services.

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