A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration

By Ateev Bhandari

(Reuters) -Corporations across the U.S. could potentially be leaving millions on the table depending on their cash management strategies, according to research published by Clearwater Analytics on Tuesday.

Other than hard currency, cash held by companies is often invested in money market funds and short-term treasury bills, with the duration of investments varying by operational needs and targeted returns.

The Federal Reserve's rate cut in October, marking the second drop in rates this year, can have immediate implications on the returns earned by U.S. companies on their idle cash, Clearwater said.

CFOs aim to secure higher yields by aligning allocations with the Fed's easing timelines, as yields on money market and short-term T-bills are closely tied to the central bank's benchmark rate.

The report from Clearwater shows that corporates choosing a dynamic cash allocation strategy have earned an average annual return of 5.5% since 2023, compared to the 3.5% earned by those avoiding frequent movement or active management.

"50 basis points, multiplied by hundreds of millions of dollars means additional flexibility and more buffers against tariff-induced inflation," said Matthew Vegari, Clearwater's head of research.

The report comes at a time when sticky inflation and labor market jitters, along with still elevated costs of capital and tariffs spillover, are beginning to pressure businesses' hiring plans and earnings.

Capital management is also under heightened focus due to the unusually deep divide among Fed policymakers, which could undermine the ability of investors to set accurate expectations about the path of interest rates.

At its October meeting, the Fed also announced ending the drawdown of its still substantial balance sheet amid evidence money market liquidity conditions have begun tightening, further signaling the need for prudent cash management.

(Reporting by Ateev Bhandari in Bengaluru; Editing by Shreya Biswas)