Legal Definitions - concentration account

A concentration account is a central bank account used by an organization to consolidate funds from various other accounts or collection points, particularly those located in different geographical areas. Instead of managing many small, separate accounts, the organization periodically moves all the money from these dispersed locations into this one main account, simplifying cash management and improving financial oversight.

Here are some examples to illustrate how a concentration account works:

• Large Retail Chain: Imagine a national clothing retailer with hundreds of stores spread across multiple states. Each individual store might deposit its daily cash and credit card sales into a local bank account. To manage its finances efficiently, the company's headquarters uses a concentration account. Every night, or perhaps weekly, the funds from all the individual store accounts are automatically transferred into this single, central concentration account. This allows the company to have a consolidated view of all its available cash, making it easier to pay suppliers, manage payroll, and invest surplus funds.

  This illustrates the term because the concentration account serves as the central hub where funds from numerous geographically dispersed retail locations are gathered, streamlining the company's overall cash management.

• Franchise Business: Consider a large fast-food franchise with hundreds of independently owned and operated locations. While each franchisee manages their own local business and bank accounts, the parent company (the franchisor) might require a percentage of gross sales or a fixed royalty fee to be remitted regularly. To simplify the collection process, the franchisor could establish a concentration account. Franchisees would periodically transfer their required payments from their local operating accounts into this central concentration account, allowing the franchisor to efficiently collect and track revenue from all its franchisees.

  This example demonstrates a concentration account by showing how a central entity (the franchisor) uses it to aggregate recurring payments from many separate, distributed business units (the franchisees).

• University System: A large public university system might have multiple campuses, satellite offices, and various departments (e.g., athletics, student housing, research grants) that each collect funds from different sources. Instead of maintaining dozens of separate bank accounts for each campus or department, the university's central finance office would utilize a concentration account. Funds collected by individual campuses for tuition, by the athletics department for ticket sales, or by research labs for grant disbursements would all be periodically swept into this main concentration account. This provides the university with a unified financial picture and greater control over its total cash resources.

  This illustrates the term as the concentration account acts as the primary repository for funds collected from diverse and often geographically separate entities within a large organizational structure, enabling centralized financial management.