Treasury Secrets: Short Term Investments Indian SMBs Can’t Ignore

Key takeaways

• Idle cash erodes value, even a modest treasury setup can add 200 to 300 basis points over savings rates.
• Create a simple treasury policy, define operating cash, investment tiers, and approval limits, then refine over time.
• Adopt a rolling 13 week cash flow forecast to unlock predictable liquidity and confident deployment of surplus funds.
• Use cash laddering to stage maturities, improve liquidity reliability, and capture better yields without sacrificing access.
• Diversify across banks and instruments, set exposure caps, and review portfolios monthly for rating or liquidity changes.
• Automate reconciliation and cash positioning with AI Accountant, then layer intelligent alerts for maturities and thresholds.
• Report to the board through a concise dashboard, highlight cash, returns, risks, and clear decisions needed.

Table of contents

Understanding Treasury Management for Indian SMBs

Cash is the oxygen of business, treasury management ensures every rupee works hard while bills get paid on time. For Indian SMBs, this means balancing GST obligations, vendor cycles, seasonal sales, and growth investments, all while navigating multiple banking relationships and investment choices.

The core building blocks are cash flow forecasting, liquidity planning, surplus deployment, risk management, and banking optimization. Since SMB finance leaders often wear many hats, automation is essential. Tools like AI Accountant streamline cash tracking and reconciliation, freeing time for strategic decisions.

Treasury is not about sophistication for its own sake, it is about visibility, discipline, and consistent execution.

Why Indian SMBs Lose Money on Idle Cash

Parking lakhs in savings at 3% while borrowing at 12% destroys value. A business with Rs 50 lakh average idle balance can lose roughly Rs 4 lakh per year compared with basic liquid funds, compounding to Rs 25 lakh over five years.

• Complexity fears delay investment setup, demat accounts and taxation feel daunting.
• Liquidity anxiety pushes conservative choices, cash gets hoarded at negative real returns.
• Poor visibility from manual reconciliation leaves outdated cash positions, surplus goes undeployed.

The fix is simple, improve visibility, set rules for operating cash, and automate surplus deployment. Small changes compound into meaningful gains.

Building Your Treasury Policy Framework

A practical treasury policy is your operating manual, it answers what to do with cash before the question arises. Keep it short, focused, and actionable.

• Operating cash, maintain 45 to 60 days of expenses plus a volatility buffer, many SMBs start with 1.5 to 2 months of average monthly costs.
• Investment tiers, funds needed within 7 days stay in sweep or overnight vehicles, 7 to 30 days in liquid funds, 30 to 90 days in ultra short duration or short term FDs.
• Risk limits, cap exposure by instrument and institution, for example no more than 30% per bank, no more than 40% per mutual fund house.
• Approvals, up to Rs 10 lakh by CFO, Rs 10 to 50 lakh by CEO, above Rs 50 lakh by board, clarity prevents delays.
• Procedures, define who initiates, approves, and monitors, and set a monthly review cadence, quarterly deep dives refine policy.
• Tax, with post April 2023 rules, debt fund gains get taxed at slab rates, incorporate this into post tax return comparisons.

Start simple, codify decision rules, then expand as complexity and scale grow.

Short Term Investment Options for Indian Businesses

India offers multiple instruments to park surplus cash, each with distinct liquidity and risk profiles.

• Sweep accounts, automatic moves to linked FDs around 5 to 6% with instant access.
• Liquid mutual funds, high quality short securities, typical 6 to 7% returns, T+1 redemption.
• Ultra short duration funds, 3 to 6 month horizons, often 7 to 8% yields.
• Treasury bills, sovereign backed 91, 182, 364 day maturities, returns comparable to or better than FDs.
• Corporate FDs, 8 to 9% in AAA or AA+ issuers, limit exposure due to credit risk.
• Commercial paper, higher yields for very short tenures, typically suited for larger tickets.

Diversify across instruments and institutions, focus on liquidity ladders and risk limits, avoid chasing headline yields blindly.

Cash Flow Forecasting and Liquidity Planning

Accurate forecasting shifts treasury from reactive to proactive. Begin with a rolling 13 week cash flow forecast, keep Week 1 at day level precision, Weeks 2 to 4 daily, Weeks 5 to 13 weekly.

• Segment inflows and outflows into committed and variable, model seasonal patterns and customer payment behavior.
• Build probability weighted scenarios, avoid surprises by explicitly modeling uncertainty.
• Compare predicted versus actual weekly, if Week 1 misses by more than 5%, investigate quickly.

Automated reconciliation is the backbone, AI Accountant categorizes transactions and matches them against forecasts, variance alerts arrive immediately. Use your forecast to capture float, that five day window before a vendor run can earn returns in overnight vehicles.

For real time visibility, monitor a central cash management dashboard, then apply AI powered cash flow forecasting to learn from patterns automatically.

Implementing Cash Laddering Strategies

Cash laddering staggers maturities, creating a conveyor belt of liquidity. Instead of one large FD, split into multiple investments maturing at regular intervals.

• Map predictable needs, salaries, GST, and vendor cycles become ladder rungs.
• Use an operational ladder for 7 to 30 day access, and a strategic ladder for 3 to 12 month commitments.
• Reassess at each maturity, deploy to operations or reinvest, let the ladder flex with your forecast.

Track the yield curve, lock longer when rates rise, stay short when rates fall, and automate with standing instructions and STPs where possible.

A disciplined ladder can add 150 to 200 basis points annually, liquidity improves, sleep quality improves too.

Risk Management in Treasury Operations

Your goal is capital protection with reasonable returns, prioritize sleep at night over chasing yields.

• Credit risk, stick to high ratings, review mutual fund portfolios for lower grade paper exposure.
• Liquidity risk, layer access, keep 15 to 20 days of expenses instantly available, use liquid funds for the next tier.
• Interest rate risk, balance fixed and floating exposures across short and medium tenures.
• Concentration risk, cap exposure per bank and fund house, spread across at least three institutions.
• Operational risk, implement maker checker for investments above Rs 5 lakh, maintain registers, and audit regularly.

Create a simple risk matrix, score credit, liquidity, and complexity, only consider options below a set threshold. Monitor monthly, document near misses, and adjust processes before issues become losses.

Banking Relationship Optimization

Banking relationships drive treasury outcomes. Audit your accounts, fees, and true costs including RTGS charges, forex markups, and minimum balance penalties.

• Negotiate better terms using your average balances, request sweep facilities, preferential FD rates, and lower transaction charges.
• Establish a secondary bank for diversification and service variety, digital first solutions can complement operations.
• Evaluate APIs and integrations, direct connectivity to accounting software reduces manual reconciliation.
• Track banking KPIs, collection periods, success rates, and resolution times, use the data in quarterly reviews.

Virtual accounts enhance visibility for customer collections or business units, while keeping a pooled balance. Build multiple RM relationships, avoid single point bottlenecks.

Technology and Automation in Treasury

Automation converts treasury into a strategic lever. Start with bank reconciliation, AI Accountant is built for Indian SMBs, GST and TDS aware, and integrates with major banks.

Consolidate cash positions through a real time cash management dashboard, then configure automated sweeps based on thresholds, maintain a minimum operating balance, sweep the rest into liquid and short duration vehicles.

Schedule payments through APIs, reduce float, and improve forecast accuracy. Corporate investment platforms allow bulk transactions, CSV uploads simplify fund deployment at scale.

Enhance predictions with AI powered cash flow forecasting, add intelligent alerts for maturities, rate changes, and risk limit breaches.

Document your stack and data flows, run periodic automation audits, identify manual pain points, and automate the next bottleneck.

Regulatory Compliance and Tax Optimization

Compliance and tax shape net returns, stay current and model post tax yields carefully.

• Debt fund gains now get taxed at slab rates regardless of holding period, factor this into comparisons with FDs and T bills.
• Account for TDS on FD interest, provision for mutual fund tax liabilities even without TDS deductions.
• Include GST on banking and advisory fees in return calculations, claim eligible input tax credits where applicable.
• Maintain board resolutions for investment limits, keep registers, and ensure disclosures comply with the Companies Act.
• Forecast treasury income within advance tax computations, avoid interest penalties due to underestimation.
• Document transfer pricing for related party treasury activities, especially cash pooling or inter company balances.

Subscribe to RBI, SEBI, and tax department updates, policy shifts can materially alter treasury strategy.

Building Treasury Excellence Step by Step

Adopt a phased approach, prove value, then scale.

• Month 1, audit cash positions, investments, and maturities, quantify idle cash cost.
• Month 2, enable sweep accounts, open liquid fund access, move obvious surplus out of current and savings accounts.
• Month 3, document a policy, set risk limits and approvals, build a four week forecast, track accuracy.
• Month 6, automate reconciliation, integrate banks, run a basic ladder aligned to payment dates.
• Month 9, add tiers by time horizon, diversify banks, set monthly monitoring and reporting.
• Month 12, aim for largely automated operations, consistent outperformance over savings rates by 200 to 300 basis points.

Measure success through idle cash percentage, incremental returns versus savings, forecast accuracy, and automation coverage. Train your team, create SOPs, and establish escalation protocols.

Creating Board Ready Treasury Reports

Board reporting elevates treasury to strategy. Build a dashboard around cash position, cash flow, returns, and risk.

• Answer what cash you have, where it sits, what you earn, what risks you manage, and what decisions need input.
• Use visual narratives, waterfalls for cash changes, heat maps for risk concentration, trends versus benchmarks for returns.
• Include variance explanations and action plans, build credibility through transparency.
• Present forward looking events, maturities and liquidity windows, and the market outlook for rates.

Keep jargon light, emphasize decisions, and standardize format and cadence for consistency.

Conclusion

Treasury excellence is about clarity, discipline, and automation. Start with visibility, move idle cash into appropriate instruments, manage risk through limits and ladders, and automate reconciliation and positioning. The opportunity cost of inaction is large, small changes today compound into meaningful gains tomorrow.

Platforms like AI Accountant remove manual overhead, investment platforms make deployment simple, and this playbook gives you the framework. Perfect is not required, consistency is. Begin with one improvement this week, your future self will thank you.

FAQ

How do I quantify minimum operating cash for a manufacturing SMB with uneven vendor cycles?

Start with an average of the last three months of operating expenses, add a 20% volatility buffer, then provision for 45 to 60 days. If monthly operating costs average Rs 40 lakh, minimum operating cash usually sits near Rs 24 to 32 lakh. Validate with a 13 week forecast, then refine monthly. An AI tool like AI Accountant can map patterns in payroll timing, raw material purchases, and statutory payments to fine tune the buffer.

Liquid funds versus bank sweep accounts, which should a CFO prefer for seven day money?

For immediate access and zero operational friction, sweep accounts are convenient, returns around 5 to 6%. For seven day windows that tolerate T+1 redemption, liquid funds often add 100 to 150 basis points. Use sweep for daily operating cushions, use liquid funds for predictable short windows identified through your 13 week forecast. Automate the decision with alerts from AI Accountant when balances exceed thresholds.

What is a practical ladder design for Rs 1 crore surplus expected to be stable for six months?

Allocate Rs 20 lakh to liquid funds for immediate needs, Rs 15 lakh each into 30, 60, and 90 day FDs, and Rs 35 lakh into an ultra short duration fund. Review at each maturity, redeploy based on updated forecasts. As rate outlook changes, shift weights between short and medium tenors. Track all rungs on a simple dashboard, for example via a cash management dashboard.

How do I set instrument and institution exposure limits that satisfy board level risk appetite?

Define caps per bank, 30% of surplus, and per mutual fund house, 40%, with at least three institutions in the mix. Apply rating floors, for corporate deposits stay at AA and above. Include exceptions and escalation rules in the treasury policy, any breach requires CEO approval and board notification. Monthly risk reviews with a simple scorecard help demonstrate discipline and control.

What forecast accuracy targets are realistic for SMBs, and how are misses addressed?

Week 1 should be within 5%, Weeks 2 to 4 within 10%, Weeks 5 to 13 within 15%. Investigate misses by category, delayed receivables, unexpected expenses, or timing shifts in recurring payments. Automate bank reconciliation with AI Accountant, then run variance analysis weekly, adjust scenario probabilities, and update buffers accordingly.

How do April 2023 debt fund tax changes alter treasury choices for a company in the 25% bracket?

All gains are now taxed at slab rates, indexation is not available. A 7% liquid fund becomes roughly 5.25% post tax, compare this against FDs and T bills net of tax and costs. Model after tax returns, add GST on fees where applicable, and choose tiers based on both liquidity and post tax yield. Revisit redemption timing around quarter ends to align with advance tax planning.

Which banking KPIs should finance heads track to justify renegotiation or switching?

Monitor average collection period, transaction success rates, charges per transaction, issue resolution time, and digital downtime incidents. Present quarterly trends to your RM, use your balances and volumes to negotiate better terms. If APIs are limited or reliability lags, consider adding a secondary bank that offers stronger integrations with tools like AI Accountant.

How can I monetize five day float between receivables and vendor runs without risking liquidity?

Use overnight or liquid funds with T+1 access, automate transfers when forecasted inflows and outflows create windows. Establish rules, maintain Rs 10 lakh operational minimum, sweep excess into liquid funds, and reverse when vendor runs approach. Intelligent alerts from a cash management dashboard enable timely moves.

What should a board ready treasury report contain for a single page executive summary?

Cover current cash balances and allocation, forecasted inflows and outflows, returns versus benchmarks, risk exposure and breaches if any, and decisions required, for example limit changes or instrument additions. Use visuals, keep jargon light, and attach a ladder schedule and risk scorecard. Standardize the template and cadence, monthly for updates, quarterly for strategy.

What is a practical automation roadmap for a lean finance team?

Phase 1, automate bank reconciliation with AI Accountant. Phase 2, implement a real time cash management dashboard and scheduled payments. Phase 3, set sweep rules and ladder automation, add AI powered cash flow forecasting. Run quarterly audits to identify the next manual bottleneck to automate.

How do I detect creeping concentration risk across banks and funds early?

Maintain an exposure sheet by institution and instrument, update weekly. Set alert thresholds at 25% for banks and 35% for fund houses, trigger action when approaching caps. Include heat maps in board reports, and review new investments against the latest exposure snapshot before execution.

Is a 60 day operating cash minimum always necessary, or can high collection predictability justify a lower buffer?

Buffers should reflect volatility, not dogma. If collection predictability is consistently strong, and your forecast accuracy sits within 5% for Week 1 and 10% for Weeks 2 to 4, a 45 day buffer can be adequate. Document the rationale, monitor accuracy monthly, and keep an escalation plan for sudden delays, an AI tool like AI Accountant helps track and alert deviations quickly.