Cash Concentration

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Cash Concentration
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What is It?

• Companies Collect Cash
• May be Deposited in Several Different Locations
• Companies Will Move Cash into a Central Account
• Concentration (Master) Account

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Why?

• Minimize Bank Balances
• Reduce Excess Balances
• Pool Funds
• Larger Available Cash Balance
• Simplicity
• Improved Control
• Concern????
• Transfer Costs

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Concentration System Design

• Over-the-Counter Collection Systems
• Many Collection Points
• Multiple, Small Deposit Banks
• Deposit Availability
• Lockbox Systems
• Few Collection Points
• Large Regional or National Banks
• Deposit Availability

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Concentration System Design

• Disbursement System
• Centralized
• Decentralized

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Moving Money

• Electronic Depository Transfers (EDT)
• ACH Transfers
• CCD or maybe CCD
• Notification
• Third-Party Vendor
• Headquarters
• Concentration Bank
• Cost Settlement

• Wire Transfers
• Large Dollar Amounts
• Repetitive
• Credit or Drawdown
• Banking Network
• Use Branches of the Same Bank

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Concentration Cost Components

• Excess Bank Balances
• Average Collected Balance Exceeds the Required
  Compensating Balance or Target Balance
• Account Analysis Statements - Determining the
  Required Balance
• Causes of Excess Balances
• Deposit Reporting Delays
• Clearing Delays
• Transfer Initiation Delays

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Concentration Cost Components

• Transfer Charges
• Bank Fees
• Third Party Vendor Charges
• Administrative Costs
• Managing Deposit Reporting
• Scheduling Cash Transfers
• Overdrafts
• Missed Deposit Deadlines

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Improving Transfer Timing

• Remove Information Delays
• Cutoff Times
• Require Timely Reports
• Anticipating Availability
• Deposit Anticipation
• Use Wire Transfers

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Reducing Transfer Costs

• Transfer Timing
• Less Frequent Transfers
• Match Transfers with Large Receipt Days
• Balance Averaging
• Transfer Mechanisms
• EDT vs. Wire
• Repetitive Wire Transfers
• Workstation Initiation of Wires

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Reducing Transfer Costs

• Target and Threshold Concentration
• Target Transfer Funds Above the Target Level
• Threshold Transfer All (or most) of the Cash
  when the Balance Reaches an Upper Limit
• Deposit Reconciliation Services

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Comparing Transfer Costs

• Determine the minimum wire transfer amount
  require to break even.
• Total costs for an EDT are 1.50
• Total costs for a wire transfer are 15.00
• Opportunity cost of funds is 9
• A wire transfer accelerates funds on day faster
  than an EDT

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Comparing Transfer Costs
Minimum Transfer 54,750
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Risks Controls

• Timely Processing
• Fraud
• Overdrafts
• Deposit Bank Failure
• Disaster Recovery Plans