Financial Management and Strategic Management · Treasury and Cash Management

Cash Collection, Float and Disbursement Management for CA Inter

Updated 4 October 2026 · Fact-checked

Cash collection and disbursement management speeds up receipt of money and controls payment timing. Float is the delay between a payment being initiated and cash being usable. You speed collections with lock box and concentration banking, slow disbursements legitimately, and compare the benefit of freed cash against the cost of the scheme.

Understand Cash Collection, Float and Disbursement Management

Cash does not move the moment a customer pays. A cheque is posted, reaches you, is deposited, and is cleared by the bank. The gap between the customer paying and you getting usable cash is float. Your aim is to shorten this gap on receipts and use the gap on payments.

Float has parts. Mail (postal) float is the time a cheque spends in transit. Processing (internal) float is the time your firm takes to record and deposit it. Clearing (bank) float is the time the bank takes to convert the cheque into available funds. Collection float is the total of these on money coming in. Disbursement float is the delay between you issuing a cheque and the money leaving your account.

To speed collections, firms use a lock box system. Customers send payments to a post office box in their own city. A local bank collects the cheques several times a day, deposits them and sends you details. This cuts mail time and processing time. It costs a fee, so you must check that the cash freed up is worth more than the fee.

Concentration banking has collection centres in many regions, each with a local bank account. Customers pay the nearby centre. Surplus balances are moved regularly to a main (concentration) account. This shortens mail and clearing time and lets you pool cash for better use. Today, electronic modes such as NEFT, RTGS and UPI reduce float a lot.

On payments, you want to hold cash as long as is fair. Playing the float means using the time between issuing a cheque and its clearing. The firm keeps a lower book balance than the bank balance, relying on the uncleared cheques being presented later, so the book balance can be run down below the bank balance. It is only sound if you can estimate the clearing pattern well. Other tools are paying on the due date and not earlier, centralised payments, and controlled disbursement accounts. Do not delay beyond agreed terms, as this harms supplier trust and credit rating.

Key rules to remember

Collection float: Collection float = Mail float + Processing float + Clearing float; All in days. Lock box mainly cuts mail and processing; concentration banking cuts mail and clearing.
Cash released by faster collection: Cash released = Average daily collections × Days saved; Average daily collections = Annual collections ÷ 365 (or 360 if the question says so).
Annual return on released cash: Annual benefit = Cash released × Rate of return; Use the opportunity rate given, such as the investment or borrowing rate.
Net benefit of a scheme: Net benefit = Annual benefit − Annual cost of scheme; Accept the scheme only if net benefit is positive.
Net float: Net float = Disbursement float − Collection float, equivalently Bank balance − Book balance; Net float is positive when uncleared issued cheques make the bank balance exceed the book balance.
Cost per rupee freed: Cost per ₹ released = Annual cost ÷ Cash released; Compare this with the rate of return. Accept if the return rate is higher.

How to solve Cash Collection, Float and Disbursement Management questions

Use this method for lock box, concentration banking and float questions.

1Read the question and list the current collection time and the proposed time in days.
2Find the days saved by the scheme. Add mail, processing and clearing savings if given separately.
3Find average daily collections from the annual or monthly figure. Use the number of days given in the question.
4Multiply daily collections by the days saved to get the cash released.
5Multiply the cash released by the return rate to find the annual benefit.
6Work out the annual cost of the scheme, including bank fees per item or fixed charges, and any extra costs.
7Subtract cost from benefit. State accept if the net is positive and reject if negative.
8Write one line of interpretation, for example the break-even rate or the qualitative risks.

Quickest way: Days saved × daily collections, then compare with cost

When to use it: Use for MCQs and for the calculation part of any written lock box or concentration banking question.

MCQ: identify the float type from the words. Cheque in post means mail float. Time the firm takes to deposit means processing float. Bank crediting time means clearing float.
MCQ: match the tool. Lock box means post office box and local bank. Concentration banking means regional accounts pooled to one main account. Playing the float means using uncleared cheques.
Calculation: write three lines only: cash released, benefit, cost. Then give net benefit and a decision.
Written theory: give a one-line meaning, how it works, advantage, limitation. This earns step marks.
Check that the days and the cost are for the same period before subtracting.

Common mistakes in Cash Collection, Float and Disbursement Management

Treating lock box and concentration banking as the same thing.
Both speed up collections, so the names blur.
Fix: Lock box uses a post office box handled by a bank. Concentration banking uses regional collection accounts whose funds are moved to a central account.
Multiplying cash released by the rate but forgetting the scheme's cost.
Students stop once they see the interest gain.
Fix: Always compute net benefit as annual benefit minus annual cost, then decide.
Using total annual collections instead of daily collections when applying days saved.
The annual figure is the first number given in the question.
Fix: Divide by 365 (or the days stated) first. Cash released = daily collections × days saved.
Calling playing the float always good practice.
Students focus on the cash gain and miss the risk.
Fix: Mention that it needs reliable estimates of clearing time. Cheques may bounce if the balance is too low, which damages reputation.
Mixing up collection float and disbursement float.
Both are called float and both involve delay.
Fix: Collection float delays your receipts, which is bad for you. Disbursement float delays your payments leaving, which helps you.
Comparing a monthly cost with an annual benefit.
Costs are often given per month or per item.
Fix: Convert everything to a year before comparing.

Worked examples

Example 1

A firm has annual collections of ₹7,30,00,000. A lock box system will cut collection time by 3 days. The firm can invest released cash at 8% per annum. The bank charges ₹1,20,000 per year for the lock box. Take 365 days. Should the firm adopt it?

Show the solution

Average daily collections = ₹7,30,00,000 ÷ 365 = ₹2,00,000.
Cash released = ₹2,00,000 × 3 = ₹6,00,000.
Annual benefit = ₹6,00,000 × 8% = ₹48,000.
Annual cost = ₹1,20,000.
Net benefit = ₹48,000 − ₹1,20,000 = −₹72,000.

Answer: The scheme gives a net loss of ₹72,000 a year, so the firm should not adopt it.

Example 2

A company has annual credit collections of ₹18,25,00,000 (365 days). A concentration banking scheme will reduce mail time by 2 days and clearing time by 1 day. It costs ₹2,00,000 a year. Funds released can be used to cut borrowing costing 12% a year. Find the net benefit and give your view.

Show the solution

Total days saved = 2 + 1 = 3 days.
Average daily collections = ₹18,25,00,000 ÷ 365 = ₹5,00,000.
Cash released = ₹5,00,000 × 3 = ₹15,00,000.
Annual saving in interest = ₹15,00,000 × 12% = ₹1,80,000.
Net benefit = ₹1,80,000 − ₹2,00,000 = −₹20,000.
Break-even rate = ₹2,00,000 ÷ ₹15,00,000 = 13.33% approximately.

Answer: The net result is a loss of ₹20,000 a year, so reject the scheme on cost alone. It would pay only if the rate of return exceeded about 13.33%, or if there are other benefits such as better cash pooling.

Exam tips

Practical questions are usually short: days saved, daily collections, rate, cost. Show each of these on its own line for step marks.
State the number of days used (365 or 360) as per the question. If not given, write your assumption.
For theory, expect questions on lock box, concentration banking and playing the float. Write meaning, working, benefit and limitation.
Always end a numerical answer with a clear accept or reject line.
In MCQs, watch whether the question asks about collection float or disbursement float, as the answer direction is opposite.

Practice questions from Treasury and Cash Management

Cash Collection, Float and Disbursement Management: frequently asked questions

What is float in cash management?

Float is the time gap between a payment being initiated and the money becoming usable cash. It includes mail, processing and clearing time. Firms try to shorten it on receipts and use it on payments.

What is the difference between lock box and concentration banking?

A lock box system has customers send payments to a post office box handled by a local bank, which deposits them quickly. Concentration banking uses collection centres with local accounts, and surplus funds are moved to one main account. Lock box cuts processing time mostly, while concentration banking helps pool cash.

What is playing the float?

It means using the delay between issuing a cheque and its clearing. The firm keeps its book balance lower than the bank balance, relying on the uncleared cheques being presented later. It works only if you can predict clearing time well. Done badly, cheques may bounce.

How do I decide whether a lock box scheme is worth it?

Find the cash released by the days saved and multiply by the return rate. Subtract the yearly cost of the scheme. If the result is positive, adopt it.