Another bank product is the repurchase agreement. Banks keep an inventory of U.S. Treasury securities and can sell them to you with the agreement to repurchase them in a week or a month. You might invest $99,600 in such securities, and the bank agrees upfront to buy them back in 30 days for $100,000. Returns may be only in the range of 3 to 5 percent.

Using discounts

Taking purchase discounts can pay off handsomely. Scour your supplier and vendor statements to see if they offer early payment discounts. Even a 1 percent discount for payment in 10 days with net due in 30 days offers a fantastic – and risk-free – return. If, for example, you owe $10,000 but can pay $9,900 if you pay within 10 days, you earn $100 for paying early. In effect, you are earning 18 percent interest on your money for 20 days. If anyone offers 2/10 net 30, take the discount. That’s equal to a 36 percent annual interest rate. It may even make sense to take an advance on your line of credit at 10 percent to earn the discount.

Longer-term options

If you have exhausted short-term strategies and still have a surplus, you might investigate other options. A good starting place might be an investment policy statement. Get your banker or investment adviser to help prepare one.

A policy statement is a brief listing of what your investment time frame might be and a listing of what types of investments are appropriate for this time frame and for your company. Most importantly, a policy outlines investments that are not appropriate. It can be a written guide for your internal managers and outside investment advisers.

A fundamental principle of investing is that to get higher rewards, you must take more risks.

If you are considering bonds or equities, consult a CPA, certified financial planner or investment adviser that work on a fee-only basis. Fee-only advisers charge by the size of the portfolio, so their reward depends on increasing your portfolio, not getting you to buy something because it pays a commission.

In summary

To invest excess funds effectively, you must know the period during which your cash is available. Different investments are appropriate for different time periods. And there may be great investments inside your own business – in the form of reducing your debt or taking discount opportunities. n