How do T-bills assist a company in meeting its cash management goals?
Is it that they are easier to cash in, their maturity rate is quick, and are issued on a daily basis?
Yes, you are correct! T-bills, or Treasury bills, can assist a company in meeting its cash management goals due to their characteristics.
1. Ease of Cash Conversion: T-bills are highly liquid and can be easily converted into cash. When a company needs immediate cash, it can sell its T-bills in the secondary market for their face value.
2. Quick Maturity Rate: T-bills have short-term maturities, typically ranging from a few days to one year. This quick maturity rate allows companies to invest their excess cash for a short period and quickly regain access to the funds when needed.
3. Issued on a Regular Basis: T-bills are issued in weekly auctions by the U.S. Department of the Treasury. This frequent issuance allows companies to regularly invest their excess cash in T-bills, ensuring they have a steady stream of maturing bills that can be converted into cash.
By utilizing T-bills, companies can effectively manage their cash flow by investing excess cash in a highly liquid instrument with a quick maturity rate. This enables them to earn a return on their short-term investments while ensuring that funds are readily available when needed for operational expenses or other financial requirements.