Minimum cash balance

A minimum cash balance is a cash reserve kept on hand to offset any unplanned cash outflows. Without this safety buffer, a business might find itself unable to pay its bills. The use of a minimum cash balance means that a certain amount of cash is maintained in a bank account, rather than being invested elsewhere, used to pay down debt, or returned to investors as a dividend.

A minimum cash balance is most necessary in environments where there are large differences between the timing and amount of cash inflows and cash outflows.