Cash Concentration Strategies

Topic of discussion

•Definition of Cash concentration

•Concentration banks

•Concentration mechanism

•Frequency of transfer

PowerPoint Presentation By : Md. Sifat Hasan

Studying Finance And Banking, Jatiya Kabi Kazi Nazrul Islam University.

Information Collected From: Modern Working Capital Management, Frederick C. Scherr)

What is cash concentration ? The process of controlling funds is called cash concentration.

Concentration banks •Depository or lockbox banks •Regional concentration banks •Central concentration banks

Depository or lockbox banks A system, from where a regional bank collects payments on behalf of a company

Regional concentration banks A bank that concentrate payments in a limited areas of the country.

Central banks A bank where all the concentrate payments are finally stored.

Concentration mechanism •Depository transfer cheque •Automated Clearing House(ach) electronic transfer•Wife transfer

Depository transfer cheque •Instruct one bank to send funds to another bank by old cheque method •Cost: less than $1 •Availability: one or two days

ACH electronic transfer •It is an electronic version of transferring calque •Cost: less than $5•Availability: 1 days

Wire transfer •This instant electronic message system between banks •Cost: $ 10•Availability: same day

Frequency of transfer •Schedule of transfer •Trigger transfer •Anticipated transfer

Schedule transfer The firm decides on a predetermined time pattern of transfers from the depository bank to the concentrate bank. •Advantage : transfer system is very simple. •Disadvantage: uneconomically small amount of fund may be made

Trigger point transfer •Avoid the transfer of small amount by basing the transfer decision on account balance rather than on timing.

Anticipated transfer It is the method of decreasing the float within the transfer process. In this method the transfer are launched based on anticipated balance on the depository bank.

The end