Cash Management: How to Prepare a Daily Cash Position Report: Part 2
If your company maintained 2 or 3 banks for payment processing, we have to modify the technique a bit so that we can effectively control all bank accounts and at the same time achieve additional income by carefully investing the short-term surplus fund. investment. Suppose your company has 3 bank accounts and we name it Bank A, Bank B and Bank C. We should choose a bank as your main bank in which you pool all your cash in that bank. Suppose our main bank is Bank B. That means that all your main collections should be deposited in this bank account. Your main payment, which included a large amount, such as subcontractors and salary payment, must also be made from this joint account account.
Any prepared payments that are small in amount but repeat rate is high, such as utility bill payment, petty cash reimbursement, staff claim and other payments, should be prepared using Bank A. We will deposit incoming checks at the Bank A with more or less the same amount of checks prepared so that the balance of the account in Bank A is always in the ideal balance.
If we have a specific payment pattern for the month, for example, we only pay our suppliers and workshop every 25th of the month, then we use Bank C for our check payment. Here we use the ZBA technique, which stands for the Zero Balance Accounts technique, in which we will only transfer funds from our joint account, which is Bank B to Bank C, only once a month. That means there is no additional cash in Bank C, which means that we have pooled all the additional cash in Bank B for our short-term investment purposes. I’ll explain the topic of short-term investing more when we get to that topic soon.
All the techniques suggested above seem complicated, but the reason is that we managed to prepare the daily cash position more quickly and accurately without wasting your time to find out the serial number for each category if we use only one bank. In our example above, you will notice that bank A is for bill payment, staff claims, and other payments. That means you only have to identify 3 series of serial check numbers for payment using Bank A. Bank B only has 2 payments which are subcontractors and salary, while Bank C is intended for vendor and shop payment. The second reason to do this is to avoid the idle balance in Bank A and Bank C, which do not generate interest income. All of our income has been pooled in Bank B, where we can place short-term investments from the overnight term to a week.
To reach our bank balance for that day, we simply calculate using simple arithmetic that it is Beginning Balance + Incoming Checks – Payment Made = Ending Balance. When we put all the bank columns next to each other, we managed to get the total closing balance when we added the closing balance of Bank A, Bank B, and Bank C. This is what I call the cash panel where we can see our entire bank balance with just 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 equivalents figure. I will explain all this terminology in depth later.