- Companies don't need to maintain a minimum cash balance. In fact, it may be easier for a company to move funds in and out of an account without worrying about it. However, a minimum balance, maintained at all times, may help avoid shortfalls. These occur when cash inflows don't match expenses and the company ends up trying to use funds that should be in the account but haven't yet been fully transferred.
- If a company doesn't have a minimum balance at all times, shortfalls may eventually lead to overdrafts and issues with money not being available when it needs to be. This, in turn, may make suppliers angry if they're not being paid for their shipments when they should be, or customers angry if refunds aren't being paid out correctly. Keeping a strict minimum balance helps avoid these relational problems that may occur when the account is in frequent use.
- The size of the minimum balance may vary with the business. Certain companies may keep only a few hundred dollars in as a minimum, while others may choose to use much more. If a company keeps a higher minimum balance in the account, this may act as a buffer in a number of ways. Notably, the business may use the minimum balance funds to cover short-term debts if no other money is available. This helps preserve company credit and keeps the business from looking bad to creditors.
- The size of the minimum balance amount may not only vary by business but on the limits companies set based on their own financial strategies. This means that it's easy to change the amount once the practice has been initiated. If a company finds itself growing, it can raise the minimum required balance to match; if the company finds that its current amount is too high, it can lower it to free up cash reserves.
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