What Is a Concentration Bank?

A concentration bank is an institution that is designated as the primary or main bank for a company or other type of organization, and serves as the means of managing most of the financial transactions associated with that organization. The concept is that the business chooses to rely primarily on the account types and other benefits offered by that bank for managing the financial resources of the company. With this type of arrangement, a concentration bank for a business or other operation may be home to various types of checking accounts, savings, investment management and even the provider of a business loan or line of credit.

The general concept of a concentration bank is to provide one-stop shop support for customers. To this end, the bank will provide basic services such as multiple checking accounts that a business can use for various purposes. For example, a small business may choose to set up one checking account as an operational account, using the balance to receive payments from customers and to make authorized purchases for the operation. A different checking account may be established to function as a payroll account, making it easier to handle disbursements such as paying wages, salaries, and commissions to employees. In addition, the company may also maintain a savings account that serves as the home for any surplus left after the business has fulfilled its obligations to its creditors.

Other types of financial services may also be offered by the concentration bank. The client may choose to obtain loans through the institution rather than seeking financing from a different institution. The bank may also extend a business line of credit, based on the amount of deposits and the credit rating of the customer. As an incentive for customers to place all their banking business with the one institution, a bank may also offer discounts on all the services extended, saving the client additional money over time.

Large corporations may choose a single bank to be the ultimate repository of funds collected from company sites around the nation or even internationally. This may involve setting up a concentration account that can be accessed from any local branch, but allows the funds to be added to a single account. The corporation can then allocate funds back to each company location based on their budgetary needs. This approach eliminates a great deal of paperwork while preserving the ability to assess the profitability of each location within the company structure.

Along with the discounts offered to motivate customers to designate a single institution as a concentration bank, additional benefits are often made available. Thanks to online banking, customers can easily transfer funds between accounts without delay. Some banks will also offer automatic transfers to cover overdrafts if authorized to do so by the client. The ability to quickly access all accounts and monitor activity is easily one of the most important aspects of using a concentrated bank approach, rather than spreading accounts over several different institutions.