If your company maintains 2 or 3 banks for payment processing, we have to modify the technique a bit so that we can effectively control all bank accounts while earning additional income by carefully investing short-term surplus funds. investment. Suppose your business has 3 bank accounts and we name it as Bank A, Bank B and Bank C. We need to choose one bank as your main bank where you pool all your cash in that bank. Let’s assume that our main bank is Bank B. That means all your main collections should be deposited in this bank account. Your primary payment, which includes a large amount such as subcontractors and salary payments, must also come from this pooled account.
Any payments prepared that are small in amount but have a high recurrence rate, such as payment of utility bills, petty cash reimbursements, personnel claims, and other payments, should be prepared using Bank A. We will deposit incoming checks at Bank A with more or less the same number of checks prepared so that the account balance in Bank A is always in ideal balance.
If we have a specific payment pattern for the month, for example we only pay our vendors and workshops on the 25th of the month, then we use Bank C for our check payment. Here we use the ZBA technique, which stands for zero balance accounts technique, where we will only transfer funds from our cash fund account, which is Bank B to Bank C, only once a month. That means there is no extra cash in Bank C, which means we have all the extra cash in Bank B for our short-term investment purposes. I’ll explain more about short-term investing when we get to that topic soon.
All the techniques suggested above seem complicated, but the reason behind it is that we manage to prepare the daily cash position faster and more accurately without wasting your time to find out the serial number for each category if we use only one bank. From our example above, you’ll notice that bank A is for bill payments, staff claims, and other payments. That means you only have to identify 3 series of serial check numbers for payment by Bank A. Bank B only has 2 payments, which are subcontractors and wages, while Bank C means payments to vendors and workshops. The second reason to do so is to avoid the idle balance in Bank A and Bank C which do not generate any interest income. All of our income has been pooled in Bank B, where we can place short-term investments from one day to one week.
To arrive at our bank balance for that day, we simply calculate using simple arithmetic which is Beginning Balance + Incoming Checks – Payment Out = Ending Balance. When we put all the columns of the bank next to each other, we manage to get the total closing balance when we add the closing balance of Bank A, Bank B and Bank C. This is what I call the box panel where we can see our entire bank balance at a glance. Of course, it is not yet complete because we have not yet taken into account the available balance and the cash and cash equivalent figure. I will explain in depth all this terminology later.
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