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Unformatted text preview: disbursement account
under a cash concentration system.
ZBAs work as follows: Once all of a given day’s checks are presented for payment from the firm’s ZBA, the bank notifies the firm of the total amount of checks,
and the firm transfers funds into the account to cover the amount of that day’s
checks. This leaves an end-of-day balance of $0 (zero dollars). The ZBA enables
the firm to keep all of its operating cash in an interest-earning account, thereby
eliminating idle cash balances. Thus a firm that used a ZBA in conjunction with a
cash concentration system would need two accounts. The firm would concentrate
its cash from the lockboxes and other collecting banks into an interest-earning
account and would write checks against its ZBA. The firm would cover the exact
dollar amount of checks presented against the ZBA with transfers from the
interest-earning account, leaving the end-of-day balance in the ZBA at $0.
A ZBA is a disbursement management tool. As we discussed earlier, the firm
would prefer to maximize its payment float. However, some cash managers feel
that actively attempting to increase float time on payments is un...
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