What Is Cash Flow Banking?
Cash flow banking is a type of check kiting where checks are used to create money instead of using money and then waiting for the cash and interest to come back in. Cash Flow Banking can be initiated by businesses to increase revenue, decrease expenses and/or defer taxes, but the transactions must eventually settle – dollars cannot be created out of thin air.
The following is an example of a $2 million cash flow banking transaction: Cash Flow Banking Example: Let’s say that you wanted to bank $2,000,000 and were willing to tie up that money for four months (120 days). You’re taking physical possession of the $2 million in your business checking account but because it’s such a large amount, your bank won’t let you leave it there even if you deposit $2 million of checks.
To do this transaction, you will need to find 2 banks that offer check clearing services and that are willing to accept checks from each other; then fund the first two (2) transactions with your own personal money. Person A is a fictitious company that owns Person B, so Person B writes a check from their corporate account to your personal account for $2 million.
In the second transaction, you write a check from your business checking account to Person A’s corporate account. In this example, we’ll say Person A gets paid by government entity Z every month for a service that is rendered. Person A writes a check from their corporate account to your business checking account for $2 million, and you deposit the check which clears after 120 days. In this case, cash flow banking is not one transaction but two separate transactions.
In the first transaction, you deposited Person B’s check in your business checking account and Person A’s check in your personal checking account. Cash Flow Banking is a banking process where you deposit one entity’s (Person B) check and then use that money to fund another transaction (Person A), which allows you to earn interest on the $2 million for 120 days that it takes the two checks to clear.
In the second transaction, you deposited Person A’s check in your business checking account. You made it work with actual checks because would would have needed to write a check for $2 million to fund the first part of the cash flow banking process if there was no money available.
Cash Flow Banking Example 2: Let’s say that you wanted to bank $10 million and were willing to tie up that money for four months (120 days). You’re taking physical possession of the $10 million in your business checking account but because it’s such a large amount, your bank won’t let you leave it there even if you deposit $10 million of checks.
You’ll need to find 10 banks that offer check clearing services and that are willing to accept checks from each other; then fund all 10 (10) transactions with your own personal money. Person A is a fictitious company that owns Person B, so Person B writes a check from their corporate account to your personal account for $2 million.
In the tenth transaction, you write a check from your business checking account to Person A’s corporate account. In this example, we’ll say Person A gets paid by government entity Z every month for a service that is rendered. Person A writes a check from their corporate account to your business checking account for $2 million, and you deposit the check which clears after 120 days. Just like in the first example, cash flow banking is not one transaction but two separate transactions.
In the first transaction, you deposited Person B’s check in your business checking account and Person A’s check in your personal checking account. Cash Flow Banking is a banking process where you deposit one entity’s (Person B) check and then use that money to fund another transaction (Person A), which allows you to earn interest on the $2 million for 120 days that it takes the two checks to clear.
In the tenth transaction, you deposited Person A’s check in your business checking account. You made it work with actual checks because would would have needed to write a check for $2 million to fund the first part of the cash flow banking process if there was no money available.
Cash Flow Banking Example 3: Let’s say that you needed to bank $10 million and were willing to tie up that money for four months (120 days). You’re taking physical possession of the $10 million in your business checking account but because it’s such a large amount, your bank won’t let you leave it there even if you deposit $10 million of checks.
You’ll need to find 10 banks that offer check clearing services and that are willing to accept checks from each other; then fund all 10 (10) transactions with your own personal money. Person A is a fictitious company that owns Person B, so Person B writes a check from their corporate account to your personal account for $2 million.
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