A sweep agreement is a financial agreement between a company and a bank that allows for the automatic transfer of funds between accounts. These agreements provide a simple way for businesses to manage their cash flow and ensure that they always have enough cash on hand to meet their financial obligations.
In a sweep agreement, a company`s excess funds are automatically transferred from their checking account to an interest-bearing account, such as a money market account or a savings account. This allows the company to earn interest on their excess funds, while still maintaining easy access to their cash when they need it.
Sweep agreements are commonly used by businesses of all sizes, but are particularly useful for small and medium-sized enterprises (SMEs) that may not have the resources to manage their cash flow in-house. By outsourcing this function to a bank, the company can focus on other important aspects of their business while also ensuring that they always have sufficient funds to meet their financial obligations.
There are several different types of sweep agreements available, each with its own unique features and benefits. For example, a zero-balance sweep agreement automatically moves all excess funds from a company`s checking account to another account at the end of each business day, ensuring that their checking account always has a zero balance. This can help businesses to avoid costly overdraft fees and other charges.
Another type of sweep agreement is the multi-tiered sweep agreement, which allows companies to earn different interest rates on different tiers of their excess cash balances. This can be an effective way for SMEs to maximize their returns on excess funds, while still maintaining easy access to their cash when they need it.
In conclusion, sweep agreements are a valuable tool for businesses looking to manage their cash flow and maximize their returns on excess funds. By working with a bank to implement a sweep agreement, companies can ensure that they always have sufficient funds on hand to meet their financial obligations, while also earning interest on their excess cash balances. If you`re interested in learning more about sweep agreements and how they can benefit your business, be sure to consult with your financial advisor or bank representative.