Question

- Why might a firm’s cash flow characteristics influence the chosen disbursement system?

- How are controlled disbursement accounts and ZBAs funded?

Answer 1

Why might a firm’s cash flow characteristics influence the chosen disbursement system?

A firm’s cash flow characteristics influence the chosen disbursement system because generally the cash flows of the firm are unpredictable to certain extent. Through proper cash management process companies do an analysis of their cash flows to predict their net cash position. If most of the time net cash positions are positive means company use to have surplus cash then they select a net invested cash position and if most of the time net cash positions are negative means company use to have cash deficit and have to borrow cash for their business operations then they select a net borrowed cash position. Therefore in cash surplus positions a firm’s cash flow characteristics influence it to choose a disbursement system where they can transfer the surplus cash in interest bearing investments.

How are controlled disbursement accounts and ZBAs funded?

A Controlled Disbursement Account is a checking account for which the bank provides early morning information about the balance and no disbursement forecast needed if the controlled disbursement account maintains a zero balance. A controlled disbursement accounts and Zero balance accounts (ZBAs) allow a banker to disburse funds with a zero balance in the account. The funding process takes place in following manner-

• First a primary account is created.
• The ZBA accounts are set up and linked to that primary account.
• During the day debits are posted to the ZBAs and balances accumulate.
• At the end of the day funds are accumulated in ZBAs are automatically moved from the primary account to the linked ZBAs so that the ZBA balances become zero.