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Unformatted text preview: on cost associated with such investments, investing a single
pool of funds reduces the firm’s transaction costs. The larger investment pool
also allows the firm to choose from a greater variety of short-term investment
vehicles. Second, concentrating the firm’s cash in one account improves the tracking and internal control of the firm’s cash. Third, having one concentration bank
enables the firm to implement payment strategies that reduce idle cash balances.
There are a variety of mechanisms for transferring cash from the lockbox
bank and other collecting banks to the concentration bank. One mechanism is a
depository transfer check (DTC), which is an unsigned check drawn on one of
the firm’s bank accounts and deposited in another. For cash concentration, a
DTC is drawn on each lockbox or other collecting bank account and deposited in
the concentration bank account. Once the DTC has cleared the bank on which it
is drawn (which may take several days), the transfer of funds is completed. Most
firms currently provide deposit information by telephone to the concentration
bank, which then...
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