Accounting Best Practices, Fifth Edition

6–5. Implement Area-Concentration Banking

Perhaps the greatest cash management problem, especially for a company with many locations, is what to do with a multitude of bank accounts. When trying to find a way to invest excess funds most efficiently, it is necessary to call all banks with which a company has an account, check on the balance in each account, determine how much of that amount can be safely extracted for investments without increasing the risk of having a presented check bounce due to a lack of funds, shift the excess funds to a central account, and finally invest it in an interest-bearing account of some kind. To conduct this much work every day may take up all of the time of several people, depending on the number and location of accounts. A tedious chore indeed, and one that may take up the largest proportion of the cash management staff’s time.

The solution is to create an area-concentration banking system. This best practice automatically shifts funds from outlying bank accounts into regional accounts, from which the cash management staff can invest funds more easily. Under this arrangement, a company’s bank is asked to automatically clear out the excess funds in an account every day, forwarding the money to a single account for each bank. Most banks will not automatically forward money to an account at a different bank, so the money tends to stop at an account within the geographical region covered by the bank. This still reduces the number of accounts sufficiently ...