Cash Dominion

Last Updated: Jun 6, 2019

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Cash dominion - A control arrangement wherein all of the borrower’s cash receipts are sent by customers to cash collateral account. It is another basic element of an asset-based facility which refers to a critical step in the overall cash management system of a company and concerns how the funds in the collection accounts are handled. In a traditional asset-based facility, the funds received in the collection accounts are sent to the lender on a daily basis for application to the then-outstanding obligations under the credit facility. This creates availability under the borrowing base, allowing the borrower to borrow as needed. This is the most efficient means for taking advantage of a revolving credit facility structure so as to reduce interest expenses.

Generally, as part of an asset-based facility, the company will be required to establish a system of bank accounts of two types:

1) Collection Accounts - Bank accounts used for receiving payments from account debtors on receivables and otherwise handling any proceeds of the collateral.

2) Disbursement Accounts - Bank accounts used for making payments to suppliers, employees and other expenses of the business.

The separation of the two types of accounts is critical for the asset-based lender to be able to effectively exercise its right of cash dominion and still allow the company to operate.

Under a full cash dominion arrangement, the bank controls the cash collections and applies the proceeds to the borrower’s loan account before releasing any funds.