Sweep Accounts and Treasury Management

How a sweep works

You set a target balance for the operating account (enough to cover expected disbursements plus a buffer). At end of business each day, anything above the target sweeps into a designated investment vehicle — typically a money-market fund or high-yield savings. If the operating balance drops below target, money sweeps back the next morning.

The visible benefit is yield: idle cash that used to earn 0% in checking now earns the prevailing money-market rate. At 4-5% on \$200K of average idle cash, that's \$8-10K per year of essentially free income.

Setting one up

Most business banks offer sweep services, often with a monthly fee (\$25-100) and a minimum average balance. Compare the fee to expected interest before signing up — at very low cash levels the fee eats the yield.

For very small businesses, a manual weekly sweep (transfer above a threshold to a high-yield savings account on Friday afternoon) captures most of the benefit without the fee. The discipline matters more than the automation.

Setting up a sweep that earns its keep

A basic sweep moves balances above a target floor (often $25-100k) from operating checking into an interest-bearing account each night, then sweeps back if the operating account would go negative. With Fed Funds in the 4-5% range, even a $500k average sweep balance generates $20-25k of additional interest income per year — a real number for a small business.

More sophisticated treasury setups use a zero-balance account (ZBA) structure: each operating account gets funded from a single concentration account at the moment funds are needed, and excess in the concentration account is swept to a money-market or short-duration treasury fund. This is overkill for most small businesses but standard for any company with multiple subsidiaries or locations.

The trap with sweeps is operational: if your accounting team is not used to the sub-account ledgering, they can mis-classify swept funds as cash outflows and confuse the cash-flow statement. Set up the sweep with your bank and your bookkeeper at the same time so the GL treatment is correct from day one.

Review sweep arrangements at least annually. Banks change rates, fees, and program structures more often than businesses notice, and the difference between a competitive sweep and a stale one can be 50-100 basis points on the entire swept balance. A 30-minute call with the bank's treasury team each year is usually all it takes to ensure the program is still earning what it should.