Ready to efficiently manage the cash in your business accounts? A Target Balance working together with a Business Sweep can provide a flexible and effective solution.

What is a Target Balance?

A Target Balance is the specific balance you want to be maintained in your business checking account. For example, you would like your business checking account to always have a balance of at least $5,000. That means $5,000 would be your target balance.

Together, you and your banker decide what target balance makes sense for your business based on your account activity. Target balances may be set to the amount needed to offset service charges or to zero (sometimes referred to as a Zero Balance account). 

What is a Business Sweep?

A Business Sweep automatically transfers money between accounts based on your parameters. Your business checking account is reviewed daily and excess funds are automatically “swept” into a savings account to earn interest or to a line of credit to pay down balances. When you need the funds, the money is swept back in to your business checking account. The type of account (savings or line of credit) used with your sweep will depend on the needs of your business.

Using these tools, a Target Balance and Business Sweep, together allows businesses to cost effectively maintain separate accounts for:

  • Various divisions
  • Locations
  • Functions, such as payroll

Cash from those accounts can be automatically consolidated into a general operating account when it makes sense to do so.

How does a Target Balance account work with a Sweep?

  • You establish a general operating account, typically a business checking account, which is linked to one or more Target Balance accounts. Each Target Balance account is assigned a specific disbursement function, such as payroll, taxes, operating expenses, or an individual depository location or division. 
  • As funds come out of the Target Balance account, transfers are made to cover checks and other debits drawn on it, as needed. 
  • At the end of the day, funds exceeding the “target balance” are automatically transferred or “swept” into your general operating account.

Benefits of Using a Target Balance Account and Sweep Together

  • Save staff time by replacing the need to monitor account balances with the convenience of automation.
  • Reduce or eliminate idle balances.
  • Put your available cash to use by pooling it in your general operating account or line of credit.
  • Completely customize your account set-up, based on your business needs and structure.
  • Additional benefits of a Loan Sweep:
    – Save money by borrowing and paying interest on only the amount required to bring your checking account to its target balance.
    – Serves as complete overdraft protection. When sweeping from your operating account to a line of credit, you’re using those excess balances to reduce your interest expense.

Which businesses would benefit from using a Target Balance account?

A Target Balance account or Zero Balance account would make sense if your business:

  • Has multiple depository or disbursement accounts
  • Wants to reduce staff time spent monitoring and transferring funds between separate accounts
  • Wants to fund an account on an “as needed” basis

Which businesses can use a Loan Sweep?*

Businesses with revolving lines of credit. 

To get started, contact a Treasury Management Specialist or Commercial Banker. Discover the Merchants Bank difference.

Additional Resources:

From paying your employees and vendors to cash liquidity, we offer solutions to maximize your cash flow and make your business more efficient. Learn more about our other Treasury Management tools for disbursement.

* Subject to approval