A cash sweep refers to the use of excess cash to pay down debt. The concept of a cash sweep is quite simple – excess cash in a borrower’s account is converted into a debt payment at the end of each business day. By conducting a cash sweep, companies can reduce their outstanding debt using cash that would otherwise sit idle in their account.
Individuals can also take advantage of cash sweep accounts, which maximize investment earnings by transferring excess cash into interest-earning accounts or investment funds. In both cases, cash sweeps provide a way for borrowers to utilize their excess cash more effectively.
Summary
How It Works
A cash sweep works by utilizing a borrower’s excess cash to pay down existing debt. To conduct a cash sweep, excess cash is swept up from a borrower’s account and applied towards any existing debt a borrower may have. Cash sweep accounts are used by companies as part of their cash management processes and by individuals to maximize their investment earnings. In both cases, cash sweeps involve excess cash that accumulates after necessary expenses have been accounted for.
For a corporation, excess cash refers to any remaining cash after operating expenses, and regular debt has been paid. Cash sweeps involve agreements between a borrower and their bank to sweep excess cash from their accounts periodically. Typically, cash sweeps occur at the end of each business day, and the excess cash is moved into a separate account and used to pay off existing debt.
For example, if a company has debt remaining from a line of credit, the daily cash sweep would automatically be converted into a debt payment. For individuals, cash sweep accounts can also help maximize investment earnings by transferring excess cash into interest-producing accounts or investment funds.
Cash Sweep Benefits
There are several reasons why corporations may choose to conduct a cash sweep. First, a cash sweep uses excess cash that would otherwise be sitting idle in a corporation’s account. By conducting a daily cash sweep, a corporation can efficiently apply its excess cash and reduce the interest resulting from its debt. By reducing outstanding debt, corporations are also in a more favorable position to refinance their debt due to the reduction in their outstanding balance.
In addition, paying down debt can reduce a company’s debt to equity ratio. When a company lowers its debt to equity ratio, it can project financial stability and improve its ability to raise future capital, both of which are important factors for investors and other stakeholders.
Cash Sweep Provisions
In some cases, a cash sweep may be required as part of a borrower’s loan agreement with a lender. To ensure loan repayment, a lender may insert a cash sweep provision into the loan agreement to ensure that a percentage of a borrower’s excess cash is used to prepay the loan. Cash sweep provisions are more likely to occur with borrowers that operate in volatile industries such as energy or commodities. In such a case, a lender would require the borrower to use a percentage of their excess cash to pay down the existing loan.
By reducing the outstanding loan balance, the cash sweep payments act as a buffer against other years where the borrower may incur lower revenues as a result of industry volatility. Cash sweep provisions can also be found in instances where a borrower wants to extend the length of the loan.
By inserting a cash sweep provision, a lender may agree to increase the term of the loan because the cash sweep provisions reduce the outstanding balance through prepayments, which naturally shortens the length of the loan.
Cash Sweep Accounts
Cash sweep accounts provide a way for individuals to maximize their investment earnings by transferring excess cash into an interest-earning account or an investment fund. In a cash sweep account, excess cash is swept up, moved into a separate investment account, or invested into various investment funds. However, a cash sweep account only invests the money for short periods to ensure that excess cash does not sit idle in a borrower’s account.
Cash sweeps are typically conducted daily, and at the end of the month, the individual receives an interest or dividend payment. Although the excess cash is moved out of the borrower’s account and into another investment, it is still readily accessible for the borrower should they choose to move into longer-term investments.
Therefore, cash sweep accounts should not be viewed as a long-term investment solution, but rather a means of earning short-term interest by investing excess cash that would otherwise be sitting idle in a borrower’s account.
Cash Sweep in Financial Modeling
Below is an example of a financial model from CFI’s online valuation modeling courses.
Other Resources
You can increase your expertise in cash flow analysis and money management by using the following CFI resources to learn more:
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русский translation: использование избыточных денежных средств
ЗАПИСЬ В ГЛОССАРИИ (ИЗВЛЕКАЕТСЯ ИЗ ВОПРОСА, УКАЗАННОГО НИЖЕ)
английский термин или фраза:
Cash sweep
русский перевод
использование избыточных денежных средств
Запись ввел(а)
Oleg Sollogub
5.1. Subject to Clause 5.2, the Borrower shall, not later than 5 (five) Business Days after the beginning of an Interest Period, deliver to the Lender a Cash Balance Report for the previous Interest Period and shall provide the Lender as soon as possible upon request with such supporting materials as may be reasonably requested by the Lender for the purposes of verifying the information contained in such Cash Balance Report.
5.2. The Borrower shall deliver the first Cash Balance Report under Clause 5.1 in respect of the Interest Period commencing on the first anniversary of this Agreement.
5.3. If a Cash Balance Report shows there to be Excess Cash in respect of the most recently ended Interest Period, the Borrower shall, not later than on the 20 (twentieth) Business Day of the current Interest Period:
(a) apply an amount equal to the Excess Cash against prepayment of the Loan in accordance with Clause 5.6; and
(b) confirm in writing to the Lender that it has made such prepayment, and the amount thereof applied against the Loan.
Единственное, что нашел в МТ на cash sweep, это «Автоматическое перечисление избыточных денежных средств на чековые процентные счета».
Не думаю, что это надо писать. По смыслу, скорее «Отнесение денежных сумм в счет досрочного погашения Кредита».
Смотреть что такое «cash sweep» в других словарях:
Sweep account — A sweep account is an account set up at a bank or other financial institution where the funds are automatically managed between a primary cash account and secondary investment accounts.In banking, sweep accounts are primarily used as a legal… … Wikipedia
sweep account — A deposit account, usually at a bank, that periodically removes a portion of the customer s funds into a higher yielding instrument. Bank sweep accounts are often sold as cash management tools. With a bank sweep account, idle funds are swept each … Financial and business terms
Sweep investment — A sweep investment, or sweep investment account, is a secondary bank account that offers additional investment options on idle funds in a primary cash or checking account. [cite web| url=http://www.latam.citibank.com/corporate/lattco/english/trans… … Wikipedia
Cash management — In United States banking, cash management, or treasury management, is a marketing term for certain services offered primarily to larger business customers. It may be used to describe all bank accounts (such as checking accounts) provided to… … Wikipedia
Sweep Account — A bank account that automatically transfers amounts that exceed (or fall short of) a certain level into a higher interest earning investment option at the close of each business day. Commonly, the excess cash is swept into money market funds. In… … Investment dictionary
sweep — The act of using all available cash flow for the repayment of debt service. Bloomberg Financial Dictionary Automated transfer of liquidity positions from the securities settlement system ( SSS) to RTGS Cash Accounts at specific moments during the … Financial and business terms
Sweep account — Account in which the bank takes all of the excess available funds at the close of each business day and invests them for the firm. The New York Times Financial Glossary * * * sweep account UK US noun [C] BANKING, FINANCE ► a bank account that… … Financial and business terms
sweep — Automated transfer of liquidity positions from the securities settlement system (SSS) to RTGS Cash Accounts at specific moments during the day. There are two types of sweeps: intra day optional sweeps and an end of day mandatory sweep … Euroclear glossary
Dale’s Supermarket Sweep — For more information on Supermarket Sweep in other countries, see Supermarket Sweep. Dale s Supermarket Sweep Format Game Show Created by Al Howard Jamie Hardwick Starring Dale Winton Narrated by … Wikipedia
liquidity sweep — Any automated transfer of cash from a Cash Account to the corresponding RTGS Cash Account Euroclear Clearing and Settlement glossary … Financial and business terms
Sweep account — A sweep account is an account set up at a bank or other financial institution where the funds are automatically managed between a primary cash account and secondary investment accounts.In banking, sweep accounts are primarily used as a legal… … Wikipedia
sweep account — A deposit account, usually at a bank, that periodically removes a portion of the customer s funds into a higher yielding instrument. Bank sweep accounts are often sold as cash management tools. With a bank sweep account, idle funds are swept each … Financial and business terms
Sweep investment — A sweep investment, or sweep investment account, is a secondary bank account that offers additional investment options on idle funds in a primary cash or checking account. [cite web| url=http://www.latam.citibank.com/corporate/lattco/english/trans… … Wikipedia
Cash management — In United States banking, cash management, or treasury management, is a marketing term for certain services offered primarily to larger business customers. It may be used to describe all bank accounts (such as checking accounts) provided to… … Wikipedia
Sweep Account — A bank account that automatically transfers amounts that exceed (or fall short of) a certain level into a higher interest earning investment option at the close of each business day. Commonly, the excess cash is swept into money market funds. In… … Investment dictionary
sweep — The act of using all available cash flow for the repayment of debt service. Bloomberg Financial Dictionary Automated transfer of liquidity positions from the securities settlement system ( SSS) to RTGS Cash Accounts at specific moments during the … Financial and business terms
Sweep account — Account in which the bank takes all of the excess available funds at the close of each business day and invests them for the firm. The New York Times Financial Glossary * * * sweep account UK US noun [C] BANKING, FINANCE ► a bank account that… … Financial and business terms
sweep — Automated transfer of liquidity positions from the securities settlement system (SSS) to RTGS Cash Accounts at specific moments during the day. There are two types of sweeps: intra day optional sweeps and an end of day mandatory sweep … Euroclear glossary
Dale’s Supermarket Sweep — For more information on Supermarket Sweep in other countries, see Supermarket Sweep. Dale s Supermarket Sweep Format Game Show Created by Al Howard Jamie Hardwick Starring Dale Winton Narrated by … Wikipedia
liquidity sweep — Any automated transfer of cash from a Cash Account to the corresponding RTGS Cash Account Euroclear Clearing and Settlement glossary … Financial and business terms
Sweep account — A sweep account is an account set up at a bank or other financial institution where the funds are automatically managed between a primary cash account and secondary investment accounts.In banking, sweep accounts are primarily used as a legal… … Wikipedia
sweep account — A deposit account, usually at a bank, that periodically removes a portion of the customer s funds into a higher yielding instrument. Bank sweep accounts are often sold as cash management tools. With a bank sweep account, idle funds are swept each … Financial and business terms
Sweep investment — A sweep investment, or sweep investment account, is a secondary bank account that offers additional investment options on idle funds in a primary cash or checking account. [cite web| url=http://www.latam.citibank.com/corporate/lattco/english/trans… … Wikipedia
Cash management — In United States banking, cash management, or treasury management, is a marketing term for certain services offered primarily to larger business customers. It may be used to describe all bank accounts (such as checking accounts) provided to… … Wikipedia
Sweep Account — A bank account that automatically transfers amounts that exceed (or fall short of) a certain level into a higher interest earning investment option at the close of each business day. Commonly, the excess cash is swept into money market funds. In… … Investment dictionary
sweep — The act of using all available cash flow for the repayment of debt service. Bloomberg Financial Dictionary Automated transfer of liquidity positions from the securities settlement system ( SSS) to RTGS Cash Accounts at specific moments during the … Financial and business terms
Sweep account — Account in which the bank takes all of the excess available funds at the close of each business day and invests them for the firm. The New York Times Financial Glossary * * * sweep account UK US noun [C] BANKING, FINANCE ► a bank account that… … Financial and business terms
sweep — Automated transfer of liquidity positions from the securities settlement system (SSS) to RTGS Cash Accounts at specific moments during the day. There are two types of sweeps: intra day optional sweeps and an end of day mandatory sweep … Euroclear glossary
Dale’s Supermarket Sweep — For more information on Supermarket Sweep in other countries, see Supermarket Sweep. Dale s Supermarket Sweep Format Game Show Created by Al Howard Jamie Hardwick Starring Dale Winton Narrated by … Wikipedia
liquidity sweep — Any automated transfer of cash from a Cash Account to the corresponding RTGS Cash Account Euroclear Clearing and Settlement glossary … Financial and business terms
