Target balances are useful when day-to-day operating needs are being met locally through an account. This may require that cash be sent into an account, rather than the usual outbound sweep. A designated amount of cash can be left in an account to ensure that a certain balance is always available. This minimizes the cost of initiating sweeps for very small amounts of cash. Cash can be swept only when the cash balance in an account reaches a certain level. Some accounts accumulate cash very slowly, and only require an occasional sweep. Cash can be swept from some accounts at longer intervals than for other accounts. Sweeping RulesĪ number of rules can be set up in a cash sweeping system to fit the cash requirements of the business entity using each account, as well as to minimize the cost of the system. The net result of a ZBA is that a company retains most of its cash in a central location, and only doles out cash from that central account to pay for immediate needs. And another transaction is when cash needed to offset debit balances is shifted from the central account to linked accounts. The second transaction is when cash needed to meet payment obligations is shifted from the central account to linked checking accounts. The first is when excess cash is shifted into a central account. There are three possible ZBA transactions, all of which occur automatically. Types of Zero Balance Account Transactions In addition, subsidiary account balances can be set at a specific target amount, rather than zero, so that some residual cash is maintained in one or more accounts. Further, if a subsidiary account has a debit (overdrawn) balance, cash is automatically shifted from the central account back to the subsidiary account in an amount sufficient to bring the account balance back to zero. Also, if deposits are made into a ZBA account, the amount of the deposit is automatically shifted to the central account. To do so, the bank calculates the amount of all checks presented against a ZBA, and pays them with a debit to the central account. A ZBA is usually a checking account that is automatically funded from a central account in an amount sufficient to cover presented checks. One way to implement a cash sweeping system is the zero balance account (ZBA). Since several banks now span entire countries, it is not especially difficult to locate banks that can provide comprehensive sweeping services across broad geographic regions. Cash sweeps are intended to occur at the end of every business day, which means that quite a large number of sweep transactions may arise over the course of a year.Ĭash sweeping can be fully automated as long as a company keeps all of its bank accounts with a single bank, where the bank can monitor account balances. By concentrating cash in one place, a business can place funds in larger financial instruments at higher rates of return. A cash sweeping system (also known as physical pooling) is designed to move the cash in a company’s outlying bank accounts into a central concentration account, from which it can be more easily invested.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |