As recession warnings flash across the headlines, small and midsized business owners are defaulting to their primary survival instinct: hoarding cash. But while keeping reserves is smart, leaving that cash sitting idle in a low-interest account is a missed opportunity that’s costing SMBs more than they realize.
According to the latest data from the Federal Deposit Insurance Corporation, the national average interest rate on a checking account sits at a mere 0.07% APY. For a business carrying a $1 million operational balance to survive a downturn, that means earning just $700 a year, while optimized yield options could return tens of thousands on the exact same liquidity.
Raj Bhaskar, CEO of embedded accounting solutions provider Tight and a small business finance expert, has seen a shift in how owners are thinking about their cash position.
“Right now, cash is king, but only if it’s working for you,” he says. “Businesses that are just hoarding cash without putting it to work are essentially watching money evaporate in real terms. In a recession, every revenue stream matters, and the passive ones are the most powerful because they don’t cost you anything extra to maintain.”
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Bhaskar shares four strategies small businesses can use to put their cash to work:
1. High-yield business savings accounts
The simplest starting point. Many SMBs are moving operational reserves into high-yield business savings accounts, which can offer significantly better returns than standard checking accounts without sacrificing liquidity.
“This is the lowest-barrier move for any small business owner,” Bhaskar says. “You’re not locking anything away, you’re not taking on risk, and you’re just making sure your cash is in the right place. It’s one of those changes that takes an afternoon to set up and pays off indefinitely.”
2. Treasury bills and short-term government securities
For businesses with a more predictable cash flow, short-duration treasury bills have become an increasingly popular option. With maturities ranging from a few weeks to a year, they offer a safe, liquid way to generate returns on cash that won’t be needed immediately.
“T-bills are something a lot of SMB owners assume are only for bigger players, but that’s not the case. If you have cash you know you won’t touch for 90 days, there’s no reason it shouldn’t be earning something while it waits,” he says.
3. Cash sweeps into money market funds
Automated cash sweeping, where excess funds are moved into a money market account at the end of each business day, is a strategy that’s been common in corporate finance for years, but is now more accessible to smaller businesses through modern banking and fintech platforms.
“The beauty of a sweep account is that it’s invisible,” Bhaskar says. “Your operating account stays topped up, and anything above your set threshold is automatically earning. Owners don’t have to think about it, which means they actually stick with it.”
4. Reinvesting in receivables financing
Some SMBs are using idle cash to fund their own receivables, essentially bridging the gap between invoicing and payment themselves, instead of using a third-party lender. This can reduce financing costs and, where cash is genuinely surplus, generate a return by offering early payment discounts to customers in exchange for faster settlement.
“This one takes a bit more financial visibility to pull off, but it’s increasingly viable for businesses that have a clear picture of their cash flow cycles,” he says. “If you know when money is coming in and going out, you can use your own capital more strategically rather than paying someone else to do it.”
Bhaskar adds: “We talk a lot about cutting costs when times get tough, but the conversation about making your existing assets work harder gets far less attention. For a lot of small businesses, the passive revenue opportunity sitting in their bank account right now is bigger than anything they’d gain from another round of cost-cutting.”
Photo credit: Tim Mossholder/Unsplash
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Tags: passive revenue, revenue, Small Business, small business owners, smb, SMBs
