Key takeaways
- A cash position is the treasury team's view of how much cash each entity holds, in each currency and account, and how much of it is free to use.
- For payment companies, much of the cash belongs to customers and is restricted by regulation, so the usable position is smaller than the total.
- A reliable position is built from reconciled balances, not from unconfirmed bank portal figures.
- It must be produced early each day, because funding decisions and payout cut-offs depend on it.
What a cash position is
A cash position is the answer to a simple question that is hard to answer accurately: how much cash do we have, where is it, and how much can we use today? Treasury teams build it every morning to decide whether to fund payout partners, move money between accounts, invest surplus balances or draw on credit lines.
For most companies, the answer comes from bank balances plus expected receipts and payments. For payment companies, it is more complicated. A large share of the cash in their accounts belongs to customers, held under safeguarding, permissible investment or trust rules. That money cannot be used for the company's own purposes, and the amount changes every hour as customers pay in and out.
The layers of a payment company's cash position
A useful position separates cash into layers, by entity and currency. Customer funds are restricted. Settlement and prefunding balances are committed to partners. Operating cash is the firm's own. Only the last layer, after minimum buffers, is free to use.
| Layer | What it is | Can treasury use it? |
|---|---|---|
| Customer funds | Money held for customers under safeguarding or similar rules | No |
| Prefunding and settlement | Balances with payout partners, schemes and processors | Committed to flows |
| Regulatory buffers | Own funds held to meet capital or surplus requirements | No, below the minimum |
| Operating cash | The firm's own money above buffers | Yes |
Worked example
A payments group has a UK e-money entity and a US money transmission entity. At 07:00 UK time, the treasury team builds the position from overnight reconciliations. The UK entity holds £41.3 million in total, of which £36.8 million is safeguarded customer money and £1.5 million is a minimum surplus the firm keeps above its requirement. The US entity holds $62.0 million, of which $55.4 million is covered by permissible investment obligations and $3.1 million is prefunding at payout partners.
Usable cash is £3.0 million in the UK and $3.5 million in the US. The group's total cash looks like more than $110 million, but less than $8 million is available for operating decisions. A position that did not separate customer funds would overstate what treasury can use by more than ten times.
Building a reliable position
The position must come from reconciled balances. A bank portal balance that has not been reconciled to the firm's records can include items that belong to another account, unposted returns or customer receipts not yet recognised. Treasury should take each balance after the overnight reconciliation, classify it by layer and entity, and only then decide on transfers.
The position should also show what is expected to happen during the day: payouts due, settlements expected, prefunding top-ups and redemptions. Treasury needs to know not only where cash is now, but where it will be at each payment cut-off.
Timing matters. The position is needed before the first payout cut-offs of the day. That means overnight reconciliations must finish early, and exceptions that affect the position must be visible to treasury, not hidden in a finance queue.
Safeheld produces the cash position by entity, currency and layer from reconciled balances each morning, and links it to the customer-money position each regulator requires. See multi-entity reconciliation and Safeheld reconciliation.
Frequently asked questions
What is a cash position?
Treasury's view of how much cash each entity holds, in each currency and account, and how much is free to use.
Why is cash positioning harder for payment companies?
Because much of their cash belongs to customers and is restricted by regulation, so usable cash is far smaller than total cash.
When should the cash position be produced?
Early each day, before payout cut-offs and funding decisions.
Should the cash position use bank portal balances?
It should use balances that have been reconciled to the firm's records.
References
- FCA Handbook, CASS 15.8 Records, accounts and reconciliations
- Massachusetts General Laws c.169B §9: permissible investments
- Bank of Canada, Retail payment supervision
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.