Investing surplus cash is part of all companies' treasury management. It must involve:

• guaranteeing sufficient liquidity and return 
•  reducing financial charges 
•  using suitable financial products 
•  limiting risks.

Investing in fixed-term deposits
In practice, most companies appear to invest their surplus cash in standard fixed-term deposits.
A fixed-term deposit is a simple, transparent method of investing funds in euros or foreign currency for the short or medium term, with a reasonable return.  However, exchange-rate fluctuations should be taken into account for deposits in foreign currency.
The duration period for a fixed-term deposit varies (depending on the amount) from seven days to eight years. The interest rate is fixed for the entire duration period. In principle, deposits are not liquid. The funds can only be withdrawn prior to maturity in exceptional cases.
The interest rate depends on the prevailing market rates, and in principle increases in line with the duration period (the longer the duration period, the higher the interest rate) and the amount invested (the bigger the amount, the higher the interest rate).

Commercial paper and structured products:  also within the reach of small and medium-sized companies
Lesser known products such as commercial paper and structured products (more info in "See also") are instruments that help in making the most of investing surplus cash. In addition, they can be integrated in the company's overall risk management.
The fact that only a limited number of SMEs use these instruments and keep to fixed-term deposits is partly due to a lack of knowledge of the possibilities and probably also to certain degree of conservatism.
It is a misconception that only large companies and institutional investors can use these instruments because they have the necessary know-how and resources in-house. SMEs can call upon their bank's expertise to carry out the required risk analyses.

Sound management of surplus cash:  three golden rules
The treasury manager must be fully aware of the risks.  A higher return is offset by a higher risk. The bank is very careful and  very selective in the paper it sells, but it does not guarantee it.
The other basic rules are: do not speculate, and ensure that there are adequate liquid resources available.
Anyone following these basic rules can use a sound mix of instruments to make the most of investment of surplus cash and at the same time hedge risks to a certain extent

Setting goals for managing surplus cash
The mix depends on the goals set by the management.  For instance, if liquidity is an important factor, the option might be taken for treasury bills. Treasury bills can be readily sold and the advantage of liquidity may counterbalance the lower return.  Commercial paper is also more liquid than standard fixed-term deposits. But the higher return is offset by a higher risk.

Structured products offer the advantage that they can be integrated in the company's risk management.  A structured product is linked to an underlying instrument, such as an exchange rate, interest rate or commodity price.
It offers a capital guarantee, but the interest income is uncertain.  To cover this risk, the company can buy an option on an underlying asset. In this way, the treasury manager can hedge against certain market risks. For instance, the company can hedge the exchange risk by buying a structured product linked to the dollar. The extent of this cover may be greater than the possible loss of interest.

It is wise for a structured product to have a link with the company's activity.  Otherwise, purchasing such products soon results in speculation. A transport company might consider buying a structured product that is linked to the trend in the oil price, but if a cleaning company were to purchase of a structured product linked to the dollar rate, this would be rather speculative.