Multi Bank Cash Concentration
In the previous article, we studied about the concept of sweeping. We are now aware that commercial banks provide their clients with the facility to sweep additional balances into a centralized account. However, we are also aware that such facilities are generally provided to corporations that use the commercial bank as their main or primary bank.
However, in real life, it is not possible for corporations to rely on a single bank in order to execute all their business. In real life, corporations have to transact business across various geographies. As such, they are required to maintain bank accounts with many local banks. This is done in order to improve the speed and efficiency of local transaction processing. However, this creates problems for the corporation as far as its liquidity management strategies are concerned.
The presence of these local accounts in several different banks has proved to be a deterrent for organizations wanting to concentrate their cash in a single account. However, over the years, technology has evolved and it is now possible for corporations to concentrate their cash holdings across several banks. This facility is provided by almost all leading commercial banks and is called a multi-bank cash concentration strategy.
In this article, we will have a closer look at what multi-bank cash concentration is, how it works and what are the various benefits that it provides to corporations.
What is Multi-Bank Cash Concentration?
Multi-bank cash concentration is a type of sweeping facility which is offered by commercial banks. Just like a sweeping facility, all the additional money above a certain threshold is periodically transferred to another bank account. However, here the transaction is happening between different banks, and sometimes these banks can be located in different countries hence the transactions can be denominated in different currencies as well.
The typical process followed during the execution of a multi-bank cash concentration program has been listed below:
Benefits of Multi Bank Cash Concentration
There are many corporations across the world that are enrolled in multi-bank cash concentration schemes. This is because there are several advantages to this scheme. Some of these advantages have been mentioned below:
The bottom line is that multi-bank cash concentration systems allow corporations to access all the benefits of sweeping even if their bank accounts are scattered across banks, regions, and currencies. This helps companies streamline their cash flow, reduce their working capital and even earn a higher return on their spare cash.
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