Cash position is the total cash an account holder has across its accounts at a point in time, counting items that have posted. Available balance is the part of an account's funds the bank will let the holder use now, after holds the bank places under its funds availability policy and after pending debits it has already committed to pay.
Why It Matters
The two numbers answer different questions. Cash position tells a treasurer or a finance team what the business has; available balance tells them what they can spend, wire or sweep today. Payments, sweeps and investment decisions made on the position rather than the available balance can fail or overdraw an account, and a bank's systems have to present both, updated as items post, for a client to manage cash with confidence.
How It Works in Practice
- 1Add up the ledger balances of each account at the cut-off being measured, across operating, concentration and investment accounts, to get the cash position.
- 2For each account, take the ledger balance and subtract funds on hold under the bank's availability policy (for example, a hold on part of a recent check deposit) to reach the funds available for withdrawal.
- 3Subtract pending debits the bank has already committed to, such as authorized card transactions and outgoing payments in process, and add credits the bank has made available early.
- 4Refresh both figures as wires, ACH files, card settlements and deposits post through the day, and reconcile the cash position to the general ledger at the end of the day.
Common Pitfalls
Treating the cash position as spendable. A deposit can be on the ledger while part of it is still on hold, so a payment released against the position can overdraw the account.
Applying rules that have changed. The Federal Reserve reduced reserve requirement ratios to zero effective March 26, 2020, and deleted Regulation D's limit on convenient transfers from savings deposits in an interim final rule in April 2020; logic built around either may no longer be needed.
Misreading hold periods. For deposits covered by Regulation CC, when funds must be made available depends on the type of deposit, and funds are 'available for withdrawal' only when they can be used for all purposes the account agreement permits for collected funds.
Key Metrics
| Metric | Formula |
|---|---|
| Position Accuracy | Reconciled cash position / General ledger balance |
| Balance Update Latency | Time from transaction post to available balance update |
Sources
- Reserve Requirements — Board of Governors of the Federal Reserve System
- Federal Reserve Board announces interim final rule to delete the six-per-month limit on convenient transfers from the savings deposit definition in Regulation D (press release, April 24, 2020) — Board of Governors of the Federal Reserve System
- 12 CFR 229.2, Definitions (Regulation CC) — eCFR
- 12 CFR 229.10, Next-day availability (Regulation CC) — eCFR
Related Terms
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