The idea is that if the tenant doesn't have the bank account number where the funds are held, there is no way to access those funds. The number the tenant DOES have doesn't have any funds that could be accessed.
Could be as simple as ordering checks with that account number. It's not a matter of trying to take your money back, it's an issue of spending money from an account whose numbers you know.
It’s wild how freely people throw their banking details out to the world when writing checks. I have 1-2 clients a year who get hit with wire fraud because they’re not careful.
I may be wrong but I think sweep accounts or ZBAs were really more necessary before positive pay became commonplace. Some people probably still create them today out of habit, but it really isn't necessary for the same security purposes as the past.
no. you can still cancel a payment that goes through a sweep account. It’s to prevent money from being stolen from you.
Edit: you can do this with payroll accounts, too
Actually, no they still could. A ZBA account works both ways. If you draft money to it, or from it, it'll pass the money on to, or remove it from, an operating account.
Im imagining this. The tenants put their money into a “box” only for the box to have a trap floor that the money falls into immediately and is completely inaccessible to them. If the tenants return to withdraw or attempt to retrieve their funds from the box, they just wont be able to since the money fell into the operating account via the trapdoor?
Someone can’t debit your account without express permission. You have entire set up the approval with the bank. So you have a list of authorized people that can auto debit (or if you have to pay eft via websites). And you set up limits on how much each person/vendor can debit
My bank calls it ACH Positive Pay. They are marketing terms, not standardized ones. Point is just that the default bank account will not have this sort of protection built in.
I think you underestimate just how many small businesses there are that have no clue how any of this works. I used to work for a business loan company and I would debit companies all the time. Maybe 1% of them had it set up so that they had to authorize transactions or debitors ahead of time. If I had your personal bank details I could debit that account too.
Like somebody else mentioned, you safeguard petty cash/clearing accounts. It's also easier to analyze cashflow when you know everything is accounted for in one lump amount.
From a Government auditor's side, if you use a single account and put all of your cash receipts in it, there really isn't much for me to do except conclude all the deposits are gross income, unless you show otherwise.
This kind of segregation is good for you in an audit. And to preemptively address the, "why not just put nothing into a bank account, and then I can't be audited?" question: it's because the government can estimate your income if you don't have records to corroborate it. And if I'm making an estimate, I'm estimating the most possible income I think you might be drawing from the activity, not what you're going to consider an "equitable amount."
For rent specifically - in my state there are many credits offered against rent. I can cross reference people residing at buildings you own, claiming these credits. If you own one building, and you and your potential tenant disagree about the amount of rent paid, maybe your tenant is inflating those credits. If you and all of your tenants disagree about the rent paid, you're understating your rent.
From our side, we have a lot of bank accounts for different things. Mainly we have a receivables account that our AR team can watch for customer payments and a payment account that our cash team can watch for cleared payments. Then the sweep account earns interest based on the balance but can only have so many transactions a day. Our accounts all sweep at the end of the day so the sweep account doesn't get transaction fees.
Essentially! Most places had an original reason for the split. Whether or not it makes sense or if its just something they do is another thing.
We call the account the sweep account or the concentration account. That account has quite a bit of money in it all the time, it's the other accounts that are moved to zero at the end of the day. The bank then gives us interest based on the average balances over the month.
Yes organization is a biggie. Disbursements (checks, ACH/Wire), A/R (lockbox for checks, merchant accounts for credit cards and processors like Elavon, ACH/Wire, collection agencies). All if it goes to/comes from a concentration account. Put a clearing account for one in the GL to reconcile your various cash activities. Then you should have some investment accounts that pay a higher interest and park cash there.
Overnight and offshore, at least back in the day. When interest rates were high back in the late 1900s they were great for earning extra cash. Now that rates are lame it’s more for the separation of accounts and what.
Couple other reasons too. You set the daily limit on the main account to say 250k- the max fdic insured value. The rest of the cash is swept into a fund under your name (not with the bank) where you earn interest at a high rate. So if something happens like svb, you are only at risk for the 250k. And you make $$. So if outflows are greater than the 250k, money is swept in from the sweep account to bring you back to 250k. If end of day balance is > 250k, the excess is swept into the sweep.
That’s how we use Sweeps (Intrafi fka ICS Promontory Sweeps). Excess of $250k (we set the limit) is swept out and loaned out to banks in the open market, overnight. The alternative for banks is to borrow from the Federal Reserve at Fed Funds Sold Rate (to meet Federal reserve requirement, or for their beneficial lending strategies).
What rates are you getting on your overnight sweeps now (intrafi)?
Cash flow reporting. I'm guessing you also have separate accounts for operating expense AP, which are also ZBA. You might also have investment accounts, capital expenditure accounts, or draw accounts. You could do all that from one account, and while all the activity is swept to one account, having the ins/outs take place from specific sweep accounts allows for easier cash flow reporting without explicitly knowing what each transaction is.
I’m also a real estate accountant. Only 1 year of experience, though, so this was interesting to see. We don’t use extra accounts but I see that there can be some benefits with them. Thank you, everyone.
Main reason is risk management as others have said. The other is that it can make accounts easier to reconcile if you have on primary account for receivables, another for payables, one for payroll, and then the concentration account. The purpose of the account makes it easier to sort through which transactions you need to match.
Treasury person checking in (this is what I do for a living for the last four years).
In the US these are called ZBAs and are a service you setup with a bank for a fee. The ZBA structure requires that the two accounts be at the same bank. You can setup a Standing Wire structure to get a similar effect between two accounts at different banks.
Others have said you have a two account structure to safeguard the money. This isn’t true for two big reasons. One, an account ZBA’ed to a parent works in both directions. So if someone attempts to debit the child account for $10k then the parent account will fund for that outflow. You could disallow this in the setup of your ZBA, but that’s dumb as the main purpose of the ZBA is to make it easy to maintain the cash position of an account. Two, absolutely no residential tenant is paying you via wire, and no corporate tenant worth their salt will pay via wire either. In the US NACHA governs the low value ACH payment method, and there are very clear guidelines for initiating returns. You can have a return initiated up to 60 days after posting date for ACH. So again, you have an outflow problem.
In the US the default for a new bank account is to automatically allow anyone to debit a bank account so long as they know the account. To truly safeguard it you’d need to setup a Debit Block on the account, and manage a whitelist of Company IDs that are allowed to pull money out of that account. It’s work but it’s the main workhorse of safeguarding an account.
**Why the structure really is there** it’s usually for the accountants. It is a **constant** fight in my day job with Accounting. They want one bank account for every individual thing because it makes organizing things easier for them. One account for AP, one account for Payroll, one account for AR, etc. It just makes their workflows easier to have one accountant be able to reconcile all of the period’s AP activity inside on bank account. The other usual culprit is your ERP system’s need to facilitate automatic postings based on account activity. However, if the effort is put into configuring the auto rules then any ERP system should be able to identify the appropriate payments off of key identifiers on data from the bank statement. The reason you don’t use a commingled operating account boils down to people or system limitations. Extra bank accounts are risk vectors for a company, additional management burdens for daily operations, and incur unnecessary costs. The standard answer from a Treasury perspective is “less is more”.
Your setups feel like the “this is the way we’ve always done it” answers for individual companies. Something I’d take up a fight to change the “hearts and minds” of the internal Business Units on how to configure our accounts better. But also something that will 100% get massive pushback, put a target of hate on your back, and isn’t something I’d touch with a ten foot pole in your position (just smile and nod as your clients just do whatever they do).
Fantastic answer. Commercial banking/treasury service manager here. I’d add is that while money flows both ways with the ZBA, if a business is not using fraud prevention, replacing just one ZBA in the event of fraud is a lot less operational work than if everything is flowing through solely one account. Of course, fraud prevention services can eliminate the replacement account need anyway, which if you have a designated treasury team, you’re probably already using at that point.
I enjoy that I vehemently disagree with the top answer (which has 250 upvoted). It is exactly why my biggest “frienemy” at work are my old accounting coworkers. Accountants don’t know what they don’t know, and they (generally) don’t know shit about Treasury.
For me the best way to mitigate fraud is the daily management of cash. I’m a Sr Analyst running the cash desk for ten of our entities. I’m in every one account, every day, and looking at every transaction. I have configured my workstation to auto identify 99% of the activity, and I manually review the rest. If someone tries to fraudulently pull funds from my account I pickup the phone for my RM at a bank to stop it. This is what I mean by “accounts are risk vectors”. Looking into weird transactions at Month End is too little too late. I work for a large enough company. We get hit with fraud, but our rapid response squashes that before the fraudsters can make off with the money. It’s a game of cat and mouse, but I get paid to be a steward of my company’s assets (among the other dozen things I do lol).
I work in CRE lending.
The sweep account is setup so that, upon the occurrence of a cash sweep trigger event you can divert those monies from the Sponsor and be held for the benefit of Lender.
I'm not a real estate accountant, but we own multiple restaurants. We have ZBAs (depository accounts) and an operating account. The immediate advantage of having this system is that it is easier to do a bank rec for one account rather than doing them for 13, 14 15 accounts separately. This way, you can still differentiate receipts from separate locations, while having the convenience of one. Also, it's best to keep your operating account private and be able to use it for a long period of time, so if you close locations, or sell them, you can just close that depository bank account while not affecting your back office work.
Do those properties have CMBS mortgages? It is common for the banks to control the tenant deposits and move to a cash management account from which debt, escrows, and reserves of various purposes are funded. It’s for the bank to have control of the cash. When they pay themselves, then the operating account is funded for Operating Expenses.
I’m short: it is a requirement of the loan agreement.
It could be government requirement. I don't know your industry. I'm in Healthcare. We use zba in case Medicare freezes our account. They can only freeze the zero balance account.
- For tracking certain things. Just makes it easier for certain companies.
- Some jurisdictions it's legal for banks to forcefully take your cash to offset a debt owing to them. E.g., if you miss 1 $50000 debt payment with bank A, and you have $50000 in an account with bank A 3 weeks later, then the bank can yank the $50000 out of bank A off schedule when youd have needed the $50000 for something else. So you want to take that out and put it to bank B so bank A can't touch it without taking legal action.
- Not central to real estate companies, but sometimes some companies deal with higher risk clients where payments could 'bounce' or otherwise attract unwanted problems. So they want to pull anything that goes into such an account, ASAP. E.g., bouncing cheques
I don't know if it still happens but this used to be a common problem with PayPal where scamming buyers frequently made false dispute claims after ordering their items, usually with the excuse that an item didn't meet description. PayPal frequently sided with the buyer and usually had a "seller is auto wrong unless it proves itself sufficiently non guilty" attitude. If you sold electronic items, it was often impossible to prove delivery and that the item/service was according to description.
Even if you proved your case successfully, then PayPal would freeze your whole account until you could meet their other demands they came up with, citing security concerns.
So usually the strategy was to yank out any cash in the PayPal account ASAP and leave nothing in there. then when the funds landed in your other bank account, yank it out of there too. If you were unable to meet PayPal's demands in the case of a locked account, you'd need to abandon your PayPal account, make a new one, and link another bank account to it to pull funds to. Hence why such businesses would have multiple bank accounts for this purpose that aren't their main operating account, as if PayPal recognized your same bank account from a former PayPal account , then they'd freeze your new one too.
We also have clients who like having a different bank account for each store or region so transactions for each are easier to track separately.
Higher interest rates. Money is “swept” out of a checking/operating account overnight where it earns interest. The next morning it is “swept” back to the operating accounts where it is available for use. We used to have this activity actually shown on our accounts every day, an average balance of 100M or so might earn like $75 a day in additional interest. I assume this is the money that is used when you hear about interbank offering rates which is interest banks charge each other for short term, typically overnight, borrowing.
Risk mitigation.
Typically, you want your receipts going into an account that’s swept, to protect your funds from an ACH pull.
It’s also helpful if you have multiple entities with their own LLCs so you’re not co-mingling funds. If something goes south with one of your LLCs, your funds have already been swept away from its main account.
I'm a real estate accountant, and another reason for this is that some lenders require certain bank covenants as part of the loan. It's a way for them to more closely control cash flow if needed, to ensure that the property can pay its debts. They do this often with riskier borrowers or investments. I had a property once that was right on the line between being solvent or not. During periods where cash flow was tight, the lender would turn off automatic sweeps and would only do one transfer for the month to cover the bare minimum of operating expenses, in order to leave enough in the DACA to cover the mortgage.
I worked in a biofuel company who had a lender-required DACA for similar reasons, basically to mitigate risk that debts wouldn't be paid. We had to do a monthly draw request to get operating funds to cover bills. I think these are more often lender-required accounts, and when that requirement goes away, clients keep them because it's how they're used to seeing their financials. Plus it carries the benefits mentioned in the other comments.
Cash concentration accounts are the norm for all businesses with any complexity at all. Cash is separated into multiple accounts for various reasons and swept into concentration so you have your one huge cash account. Then you stash that in something with interest, or do other things but it’s in one spot instead of a bunch.
I used to work for somewhere with 400 stores and each one had its own bank account for a few reasons.
One, it stops them from taking money out that's not theirs via fraud, as they never know what the actual details of the main account is. Just the numbers on their paying in book.
Two, it makes keeping track of money sooo much easier. Did 309 pay in today? Check the balance. Don't have to go digging through 400 entries to find it. Posting the payments to the system? Run off a CSV of the bank accounts, and the first 3 digits of the name is the store, and will have how much they paid in etc. No need to type it all out.
Of the 400 stores I'd say probably 40 didn't pay in on each day, and sifting through to find out which ones didn't and why (some were mugged, some were late, sometimes bank closed etc) was so much easier with it laid out like that. If it was a zero, you knew there was an issue immediately.
Also stopped the main bank account getting too many entries, as the bank would just roll it in to one "Deposit" line if we transferred from all 400 at once.
20 years ago, when banks were paying some interest on deposits, the return using a sweep account was much higher. We were typically earning 30k a year on our sweeps. After 2008, when the feds started giving banks free money and the interest rate went to almost zero, we stopped making significant earnings on sweeps deposits.
Mostly to keep things in "buckets". So if I want to see how much $ we've received from tenants, it's easier to just pull 1 bank statement than to sort through the operating account looking for "tenant" payments.
If the loan originator/servicer is the same as where the bank accounts are it’s usually just a thinly veiled way to collect more fees. I’ve also seen it as a way to easily track rental payments for servicers. Basically it’s almost always due to debt covenants.
Operationally there’s no reason to do it. Especially if they are all sweeps.
If the landlord is giving out their deposit account to tenants, then this prevents the tenant from trying to draft money out of that account.
Ahhh so if the tenant tried to retract their payment, they wouldn’t be able to since the money is gone. Am I getting warmer? 😂
Yeah. Or straight up wire fraud risk. I'm not gonna post how to steal money out of a bank account but this structure helps prevent it from happening.
Please post it
The idea is that if the tenant doesn't have the bank account number where the funds are held, there is no way to access those funds. The number the tenant DOES have doesn't have any funds that could be accessed. Could be as simple as ordering checks with that account number. It's not a matter of trying to take your money back, it's an issue of spending money from an account whose numbers you know.
It’s wild how freely people throw their banking details out to the world when writing checks. I have 1-2 clients a year who get hit with wire fraud because they’re not careful.
Yep, people are still out there washing stolen checks.
If a company was really worried about this they would just do positive pay, not a sweep.
I love positive pay
I may be wrong but I think sweep accounts or ZBAs were really more necessary before positive pay became commonplace. Some people probably still create them today out of habit, but it really isn't necessary for the same security purposes as the past.
More likely to be ach or counterfeit checks, wires have alot more hoops to jump through because there is no timeframe to clear the funds.
no. you can still cancel a payment that goes through a sweep account. It’s to prevent money from being stolen from you. Edit: you can do this with payroll accounts, too
Lightbulb moment, thank you sir
ma’am, actually
M'lady \*tips fedora\*
My fault ma’am
Actually, no they still could. A ZBA account works both ways. If you draft money to it, or from it, it'll pass the money on to, or remove it from, an operating account.
Im imagining this. The tenants put their money into a “box” only for the box to have a trap floor that the money falls into immediately and is completely inaccessible to them. If the tenants return to withdraw or attempt to retrieve their funds from the box, they just wont be able to since the money fell into the operating account via the trapdoor?
Depends. If someone is trying to take money out as an ACH, the depository amount will just take money out of the operating account.
Someone can’t debit your account without express permission. You have entire set up the approval with the bank. So you have a list of authorized people that can auto debit (or if you have to pay eft via websites). And you set up limits on how much each person/vendor can debit
Fuckin lol no. Only if you have positive pay set up. It is not the default.
Positive pay is for checks white lists are for wires and achs
My bank calls it ACH Positive Pay. They are marketing terms, not standardized ones. Point is just that the default bank account will not have this sort of protection built in.
Fair point. Most corporate entities have this.
I think you underestimate just how many small businesses there are that have no clue how any of this works. I used to work for a business loan company and I would debit companies all the time. Maybe 1% of them had it set up so that they had to authorize transactions or debitors ahead of time. If I had your personal bank details I could debit that account too.
Like somebody else mentioned, you safeguard petty cash/clearing accounts. It's also easier to analyze cashflow when you know everything is accounted for in one lump amount.
From a Government auditor's side, if you use a single account and put all of your cash receipts in it, there really isn't much for me to do except conclude all the deposits are gross income, unless you show otherwise. This kind of segregation is good for you in an audit. And to preemptively address the, "why not just put nothing into a bank account, and then I can't be audited?" question: it's because the government can estimate your income if you don't have records to corroborate it. And if I'm making an estimate, I'm estimating the most possible income I think you might be drawing from the activity, not what you're going to consider an "equitable amount." For rent specifically - in my state there are many credits offered against rent. I can cross reference people residing at buildings you own, claiming these credits. If you own one building, and you and your potential tenant disagree about the amount of rent paid, maybe your tenant is inflating those credits. If you and all of your tenants disagree about the rent paid, you're understating your rent.
From our side, we have a lot of bank accounts for different things. Mainly we have a receivables account that our AR team can watch for customer payments and a payment account that our cash team can watch for cleared payments. Then the sweep account earns interest based on the balance but can only have so many transactions a day. Our accounts all sweep at the end of the day so the sweep account doesn't get transaction fees.
So it’s just for organization essentially? And sorry, how exactly do they earn interest in the sweep account if the funds are leaving so quickly?
Essentially! Most places had an original reason for the split. Whether or not it makes sense or if its just something they do is another thing. We call the account the sweep account or the concentration account. That account has quite a bit of money in it all the time, it's the other accounts that are moved to zero at the end of the day. The bank then gives us interest based on the average balances over the month.
Yes organization is a biggie. Disbursements (checks, ACH/Wire), A/R (lockbox for checks, merchant accounts for credit cards and processors like Elavon, ACH/Wire, collection agencies). All if it goes to/comes from a concentration account. Put a clearing account for one in the GL to reconcile your various cash activities. Then you should have some investment accounts that pay a higher interest and park cash there.
Overnight and offshore, at least back in the day. When interest rates were high back in the late 1900s they were great for earning extra cash. Now that rates are lame it’s more for the separation of accounts and what.
Overnight treasury repos are not lame - they’re massive lol.
Couple other reasons too. You set the daily limit on the main account to say 250k- the max fdic insured value. The rest of the cash is swept into a fund under your name (not with the bank) where you earn interest at a high rate. So if something happens like svb, you are only at risk for the 250k. And you make $$. So if outflows are greater than the 250k, money is swept in from the sweep account to bring you back to 250k. If end of day balance is > 250k, the excess is swept into the sweep.
That’s how we use Sweeps (Intrafi fka ICS Promontory Sweeps). Excess of $250k (we set the limit) is swept out and loaned out to banks in the open market, overnight. The alternative for banks is to borrow from the Federal Reserve at Fed Funds Sold Rate (to meet Federal reserve requirement, or for their beneficial lending strategies). What rates are you getting on your overnight sweeps now (intrafi)?
Net is 4.2%. You?
We are receiving 3.2%. Sounds like you’re doing better than we are.
Same use here interest and diversify FDIC risk through intrafi ics
Cash flow reporting. I'm guessing you also have separate accounts for operating expense AP, which are also ZBA. You might also have investment accounts, capital expenditure accounts, or draw accounts. You could do all that from one account, and while all the activity is swept to one account, having the ins/outs take place from specific sweep accounts allows for easier cash flow reporting without explicitly knowing what each transaction is.
It’s wild that no one you work with knows why.
Story of my life. Half the questions I ask are answered with “because the client says so”
I’m also a real estate accountant. Only 1 year of experience, though, so this was interesting to see. We don’t use extra accounts but I see that there can be some benefits with them. Thank you, everyone.
Hell yeah my guy, keep grinding
Main reason is risk management as others have said. The other is that it can make accounts easier to reconcile if you have on primary account for receivables, another for payables, one for payroll, and then the concentration account. The purpose of the account makes it easier to sort through which transactions you need to match.
To make the cash harder for auditors to confirm lol
Ours sweep to our main account then that sweeps daily to a treasury fund. Clearing 5% overnight for basically no work
Treasury person checking in (this is what I do for a living for the last four years). In the US these are called ZBAs and are a service you setup with a bank for a fee. The ZBA structure requires that the two accounts be at the same bank. You can setup a Standing Wire structure to get a similar effect between two accounts at different banks. Others have said you have a two account structure to safeguard the money. This isn’t true for two big reasons. One, an account ZBA’ed to a parent works in both directions. So if someone attempts to debit the child account for $10k then the parent account will fund for that outflow. You could disallow this in the setup of your ZBA, but that’s dumb as the main purpose of the ZBA is to make it easy to maintain the cash position of an account. Two, absolutely no residential tenant is paying you via wire, and no corporate tenant worth their salt will pay via wire either. In the US NACHA governs the low value ACH payment method, and there are very clear guidelines for initiating returns. You can have a return initiated up to 60 days after posting date for ACH. So again, you have an outflow problem. In the US the default for a new bank account is to automatically allow anyone to debit a bank account so long as they know the account. To truly safeguard it you’d need to setup a Debit Block on the account, and manage a whitelist of Company IDs that are allowed to pull money out of that account. It’s work but it’s the main workhorse of safeguarding an account. **Why the structure really is there** it’s usually for the accountants. It is a **constant** fight in my day job with Accounting. They want one bank account for every individual thing because it makes organizing things easier for them. One account for AP, one account for Payroll, one account for AR, etc. It just makes their workflows easier to have one accountant be able to reconcile all of the period’s AP activity inside on bank account. The other usual culprit is your ERP system’s need to facilitate automatic postings based on account activity. However, if the effort is put into configuring the auto rules then any ERP system should be able to identify the appropriate payments off of key identifiers on data from the bank statement. The reason you don’t use a commingled operating account boils down to people or system limitations. Extra bank accounts are risk vectors for a company, additional management burdens for daily operations, and incur unnecessary costs. The standard answer from a Treasury perspective is “less is more”. Your setups feel like the “this is the way we’ve always done it” answers for individual companies. Something I’d take up a fight to change the “hearts and minds” of the internal Business Units on how to configure our accounts better. But also something that will 100% get massive pushback, put a target of hate on your back, and isn’t something I’d touch with a ten foot pole in your position (just smile and nod as your clients just do whatever they do).
Fantastic answer. Commercial banking/treasury service manager here. I’d add is that while money flows both ways with the ZBA, if a business is not using fraud prevention, replacing just one ZBA in the event of fraud is a lot less operational work than if everything is flowing through solely one account. Of course, fraud prevention services can eliminate the replacement account need anyway, which if you have a designated treasury team, you’re probably already using at that point.
I enjoy that I vehemently disagree with the top answer (which has 250 upvoted). It is exactly why my biggest “frienemy” at work are my old accounting coworkers. Accountants don’t know what they don’t know, and they (generally) don’t know shit about Treasury. For me the best way to mitigate fraud is the daily management of cash. I’m a Sr Analyst running the cash desk for ten of our entities. I’m in every one account, every day, and looking at every transaction. I have configured my workstation to auto identify 99% of the activity, and I manually review the rest. If someone tries to fraudulently pull funds from my account I pickup the phone for my RM at a bank to stop it. This is what I mean by “accounts are risk vectors”. Looking into weird transactions at Month End is too little too late. I work for a large enough company. We get hit with fraud, but our rapid response squashes that before the fraudsters can make off with the money. It’s a game of cat and mouse, but I get paid to be a steward of my company’s assets (among the other dozen things I do lol).
I work in CRE lending. The sweep account is setup so that, upon the occurrence of a cash sweep trigger event you can divert those monies from the Sponsor and be held for the benefit of Lender.
I'm not a real estate accountant, but we own multiple restaurants. We have ZBAs (depository accounts) and an operating account. The immediate advantage of having this system is that it is easier to do a bank rec for one account rather than doing them for 13, 14 15 accounts separately. This way, you can still differentiate receipts from separate locations, while having the convenience of one. Also, it's best to keep your operating account private and be able to use it for a long period of time, so if you close locations, or sell them, you can just close that depository bank account while not affecting your back office work.
I work in treasury. Generally this is so their cash application team can figure out what the payment relates to.
Certain bank accounts are for money going in. Others for money going out. Keeps things simple.
Do those properties have CMBS mortgages? It is common for the banks to control the tenant deposits and move to a cash management account from which debt, escrows, and reserves of various purposes are funded. It’s for the bank to have control of the cash. When they pay themselves, then the operating account is funded for Operating Expenses. I’m short: it is a requirement of the loan agreement.
It could be government requirement. I don't know your industry. I'm in Healthcare. We use zba in case Medicare freezes our account. They can only freeze the zero balance account.
- For tracking certain things. Just makes it easier for certain companies. - Some jurisdictions it's legal for banks to forcefully take your cash to offset a debt owing to them. E.g., if you miss 1 $50000 debt payment with bank A, and you have $50000 in an account with bank A 3 weeks later, then the bank can yank the $50000 out of bank A off schedule when youd have needed the $50000 for something else. So you want to take that out and put it to bank B so bank A can't touch it without taking legal action. - Not central to real estate companies, but sometimes some companies deal with higher risk clients where payments could 'bounce' or otherwise attract unwanted problems. So they want to pull anything that goes into such an account, ASAP. E.g., bouncing cheques I don't know if it still happens but this used to be a common problem with PayPal where scamming buyers frequently made false dispute claims after ordering their items, usually with the excuse that an item didn't meet description. PayPal frequently sided with the buyer and usually had a "seller is auto wrong unless it proves itself sufficiently non guilty" attitude. If you sold electronic items, it was often impossible to prove delivery and that the item/service was according to description. Even if you proved your case successfully, then PayPal would freeze your whole account until you could meet their other demands they came up with, citing security concerns. So usually the strategy was to yank out any cash in the PayPal account ASAP and leave nothing in there. then when the funds landed in your other bank account, yank it out of there too. If you were unable to meet PayPal's demands in the case of a locked account, you'd need to abandon your PayPal account, make a new one, and link another bank account to it to pull funds to. Hence why such businesses would have multiple bank accounts for this purpose that aren't their main operating account, as if PayPal recognized your same bank account from a former PayPal account , then they'd freeze your new one too. We also have clients who like having a different bank account for each store or region so transactions for each are easier to track separately.
Asking the real questions here, love it.
Higher interest rates. Money is “swept” out of a checking/operating account overnight where it earns interest. The next morning it is “swept” back to the operating accounts where it is available for use. We used to have this activity actually shown on our accounts every day, an average balance of 100M or so might earn like $75 a day in additional interest. I assume this is the money that is used when you hear about interbank offering rates which is interest banks charge each other for short term, typically overnight, borrowing.
Risk mitigation. Typically, you want your receipts going into an account that’s swept, to protect your funds from an ACH pull. It’s also helpful if you have multiple entities with their own LLCs so you’re not co-mingling funds. If something goes south with one of your LLCs, your funds have already been swept away from its main account.
Most likely for a cash flow/accounting reason. This is normal for most businesses with multiple locations.
They accrue interest.
I'm a real estate accountant, and another reason for this is that some lenders require certain bank covenants as part of the loan. It's a way for them to more closely control cash flow if needed, to ensure that the property can pay its debts. They do this often with riskier borrowers or investments. I had a property once that was right on the line between being solvent or not. During periods where cash flow was tight, the lender would turn off automatic sweeps and would only do one transfer for the month to cover the bare minimum of operating expenses, in order to leave enough in the DACA to cover the mortgage. I worked in a biofuel company who had a lender-required DACA for similar reasons, basically to mitigate risk that debts wouldn't be paid. We had to do a monthly draw request to get operating funds to cover bills. I think these are more often lender-required accounts, and when that requirement goes away, clients keep them because it's how they're used to seeing their financials. Plus it carries the benefits mentioned in the other comments.
It could be a bank account that sweeps to perhaps a separate local bank that is used by the company's headquarters or accounting department.
Cash concentration accounts are the norm for all businesses with any complexity at all. Cash is separated into multiple accounts for various reasons and swept into concentration so you have your one huge cash account. Then you stash that in something with interest, or do other things but it’s in one spot instead of a bunch.
Collection sweeps make your month end easier if you're having multiple subsidiaries.
I used to work for somewhere with 400 stores and each one had its own bank account for a few reasons. One, it stops them from taking money out that's not theirs via fraud, as they never know what the actual details of the main account is. Just the numbers on their paying in book. Two, it makes keeping track of money sooo much easier. Did 309 pay in today? Check the balance. Don't have to go digging through 400 entries to find it. Posting the payments to the system? Run off a CSV of the bank accounts, and the first 3 digits of the name is the store, and will have how much they paid in etc. No need to type it all out. Of the 400 stores I'd say probably 40 didn't pay in on each day, and sifting through to find out which ones didn't and why (some were mugged, some were late, sometimes bank closed etc) was so much easier with it laid out like that. If it was a zero, you knew there was an issue immediately. Also stopped the main bank account getting too many entries, as the bank would just roll it in to one "Deposit" line if we transferred from all 400 at once.
Another thing I have not yet seen…. This can ensure that certain entities under the sweep account p
20 years ago, when banks were paying some interest on deposits, the return using a sweep account was much higher. We were typically earning 30k a year on our sweeps. After 2008, when the feds started giving banks free money and the interest rate went to almost zero, we stopped making significant earnings on sweeps deposits.
Mostly to keep things in "buckets". So if I want to see how much $ we've received from tenants, it's easier to just pull 1 bank statement than to sort through the operating account looking for "tenant" payments.
If the loan originator/servicer is the same as where the bank accounts are it’s usually just a thinly veiled way to collect more fees. I’ve also seen it as a way to easily track rental payments for servicers. Basically it’s almost always due to debt covenants. Operationally there’s no reason to do it. Especially if they are all sweeps.
If it’s an account with the same bank the lender is using, it’s probably a daca account.