restricted cash
Restricted cash is money a company holds but cannot spend freely, because it is set aside for a specific purpose like a loan condition or a court order.
In plain English
"Oga, but the account shows we have ₦80 million. Why can't we pay the contractor?" "Because ₦30 million of that is not ours to touch, it is sitting there for the bank."
That exchange happens a lot in finance departments across Lagos, especially in companies that have taken loans with conditions attached.
Restricted cash is exactly that ₦30 million. It sits in the bank account, it looks like money the company owns, but there is a rule tying it down. Maybe the bank insists a certain amount stays untouched as security for a loan. Maybe a court case froze part of it. Maybe a landlord is holding a tenant's deposit until the lease ends. The cash exists, it earns interest sometimes, but nobody can walk in and spend it on salaries or supplies.
A Nigerian example makes it clearer. A construction firm gets a ₦200 million loan from a bank to build a shopping complex in Abuja. The bank says ₦20 million must remain in a separate account as a reserve, untouched until the project reaches a certain stage. That ₦20 million is restricted cash. It belongs to the company on paper, but it is locked for a purpose beyond daily use.
In the United Kingdom, a similar thing happens when a company holds customer deposits in a ring fenced account, separate from operating funds, because regulation demands it.
For families abroad sending money home, there is a softer version of the idea. Money kept aside specifically for a sibling's school fees, untouched no matter how tight things get that month, works the same way. It is there, but it has a job already assigned to it.
A logistics company has ₦50 million in the bank. ₦10 million of that is held as collateral for a vehicle loan and cannot be withdrawn. The company reports ₦40 million as free cash and ₦10 million as restricted cash on its balance sheet.
Questions people ask
Where does restricted cash appear in the financial statements?
It usually shows separately from cash and cash equivalents on the balance sheet, sometimes as a current asset and sometimes as a long term one, depending on when the restriction lifts.
Can a company use restricted cash in an emergency?
Generally no, not without breaking an agreement or a legal condition, which could trigger penalties or default on a loan.
Is restricted cash the same as an escrow account?
They are close cousins. Escrow is one common form of restricted cash, held by a third party until certain conditions are met, but restrictions can also come from banks, courts, or regulators directly.
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