Short-Term Investment Policy For Corporate Treasury: A Practical Starter Template

Idle cash looks safe, but for a growing business it is silent risk. Inflation eats it, markets move, and without a clear short term investment policy, decisions get made on the fly.

Treasury teams know this. The challenge is turning abstract rules like “safety first” into a simple, board-approved document that people actually use.

This guide walks through why you need a policy, the core sections it should include, and a practical starter template you can adapt for your company, whether you manage treasury with spreadsheets or a full treasury system.

Why Your Treasury Needs A Short Term Investment Policy

A short term investment policy is the rulebook for how your company invests excess cash for periods under 12 to 24 months.

At a minimum, it should make three things crystal clear:

• What you are optimizing for: safety, liquidity, yield, and in what order
• Which instruments you can and cannot use
• Who is allowed to make which decisions, and within what limits

Without that clarity, portfolio choices depend on whoever is in the chair that day. That can work in calm markets, but it breaks the moment rates spike or liquidity tightens.

For a deeper view on how safety, liquidity, and return conflict with each other, the Association for Financial Professionals shares useful strategies for managing your company’s short-term investments.

If your organization is still defining broader treasury responsibilities, it also helps to anchor this work in a wider comprehensive guide to treasury management.

Core Building Blocks Of A Short Term Investment Policy

Think of your policy as a decision framework, not a legal essay. Treasury teams, finance, and the board should all be able to skim it and know what is allowed.

1. Objectives And Scope

Set a short, ordered list of objectives. A common sequence is:

1. Preservation of principal
2. Maintenance of liquidity
3. Reasonable return on cash

Be explicit about what the policy covers:

• Types of cash (operating, reserve, strategic)
• Expected investment horizon for each bucket
• Currencies in scope

A good policy also defines which legal entities are covered and which are governed by local rules or separate documents.

For structure ideas, Treasury Management International explains how a cash investment policy statement works as a control tool for surplus cash.

2. Governance, Roles, And Approval

Write down who does what. For example:

• Board or finance committee approves the policy and any changes
• CFO owns the policy
• Treasurer executes within approved limits
• Back office or controller reconciles and reports

Add simple approval layers. For instance, trades up to a limit can be approved by treasury, above that by the CFO, and anything outside policy by the board.

This section should also state how often the policy is reviewed, for example annually or when there is a material change in strategy or market conditions.

3. Risk Parameters

This is where you turn risk appetite into numbers.

Cover at least:

• Credit risk: minimum ratings for issuers and instruments, approved counterparties, concentration limits
• Liquidity risk: maximum weighted average maturity (WAM), minimum cash that must be same-day or next-day liquid
• Market risk: limits on duration, use of floating versus fixed, and whether derivatives are allowed purely for hedging

J.P. Morgan provides a practical cash investment policy framework that shows how these limits support consistent decisions across cycles.

4. Eligible And Prohibited Instruments

This is one of the most used parts of the document, so keep it simple and clear.

Common eligible instruments for corporate short term cash include:

• Demand deposits and term deposits with approved banks
• Government bills and notes within a set maturity limit
• High-grade corporate commercial paper
• AAA-rated money market funds

Then list what is not allowed, such as:

• Equities
• High-yield or unrated corporate debt
• Structured or illiquid products
• Crypto assets

You can also tie products to cash buckets, for example, operating cash only in demand deposits and money market funds, reserves allowed in slightly longer paper.

For growing teams looking at tools to enforce these rules, reviewing top 10 treasury software solutions can help you connect policy design with daily execution.

Practical Starter Template You Can Adapt

Here is a lean, board-ready structure you can use as a starting point. Each bullet becomes a short subsection in your document.

1. Purpose
   • Define the goal of the policy, such as safeguarding company funds while earning a reasonable return within defined risk limits.
2. Scope
   • Describe which legal entities, currencies, and cash types fall under the policy.
3. Objectives
   • Rank safety, liquidity, and return, in that order, and note any secondary aims, such as ESG guidelines if relevant.
4. Governance And Responsibilities
   • List roles, delegated authorities, signature and dealing limits, and review cadence.
5. Risk Management Framework
   • Credit criteria, counterparty limits, WAM and duration limits, currency rules, and hedging policy.
6. Eligible Investments
   • Short descriptions of every permitted instrument with maximum maturity, rating, and position size.
7. Prohibited Investments
   • Clear, short list to remove any doubt for traders or banking partners.
8. Liquidity Buckets
   • Define “operating,” “reserve,” and “strategic” cash, their time horizons, and permitted instruments for each.
9. Reporting And Monitoring
   • Frequency and format of reports, exceptions reporting, and who receives what.
10. Policy Review And Breach Handling
    • How breaches are reported, who approves remediation, and how the board is informed.

If you want to compare your draft with a more formal example, Burkland shares a helpful sample treasury and investment policy often used by venture-backed companies.

Huntington Bank’s cash management investment policy creation guide also breaks down typical sections and questions for boards.

Translating Policy Into Day-To-Day Treasury Decisions

A short term investment policy only works if it guides real trades.

Many teams find it helpful to map balances into three buckets in their treasury spreadsheet or system:

• Operating cash: payroll, vendor payments, tax. Same-day liquid.
• Reserve cash: 3 to 12 months of runway or covenant buffers. Staggered maturities.
• Strategic cash: funds for M&A or future expansion that are not yet committed. Slightly longer tenors, within board comfort.

Once you tag accounts and balances by bucket, policy limits become simple filters and rules, not theory.

Approaches to implementation vary by company size and risk appetite. For a view on how other treasurers think about the risk/return balance, this article on approaches to investing short-term cash in corporate treasury is a useful comparison point.

If you are still building out core processes and thinking about when to invest in a full treasury management system, pairing your policy with the right best treasury software platforms can reduce manual work and improve control.

Checklist Before You Take Your Policy To The Board

Before you ask for sign-off, run a quick internal challenge:

• Does every section fit on 5 to 7 pages total, or has it turned into a textbook?
• Can a non-treasury board member explain the objectives after one read?
• Have you back-tested the rules against the last 12 to 24 months of market moves?
• Do limits and approved instruments still work if rates fall sharply or spike again?
• Are responsibilities clear enough that you would feel comfortable in an audit?

For early-stage and scale-up companies, J.P. Morgan also explains why a cash IPS is key for early-stage companies that want to extend runway without taking on hidden risk.

Conclusion

A clear short term investment policy turns idle cash from a worry into a managed asset. It sets shared rules for safety, liquidity, and return, and gives your treasury team the confidence to act quickly when markets move.

Start small. Use the template structure above, adjust objectives and limits to your risk appetite, then validate it with real cash balances and scenarios.

Once the board signs off, connect the policy to your daily tools and reporting so it becomes a living part of how you run the business, not just another PDF in a folder.