CASH MANAGEMENT

Question 1

What is zero-balance account system?

Answer 1

Maintain a regional bank account

Funds are transferred only when checks are presented

Cost-effective only if the amount that the firm saves on interests from the longer float is adequate to cover additional fees for account maintenance and cash transfers

Question 2

Advantages of zero-balance accounts

Answer 2

Maximize float on disbursements - because checks take longer to clear

No need to deposit extra cash in the account for contingencies