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CA Intermediate · Financial Management and Strategic Management · Treasury and Cash Management

In treasury management, the process of a company using a bank's concentration banking arrangement, where customers pay into local collection centres and the funds are then moved to a central account, is mainly intended to:

Concentration banking is meant to shorten collection time. Customers pay at local collection centres near them, so cheques spend less time in the post and in clearing, and the funds are then transferred to a central account, which speeds up cash availability to the firm.

  1. AReduce the mailing and processing time of cheques, thereby speeding up collectionsCorrect
  2. BDelay payments to suppliers beyond the due date
  3. CIncrease the number of idle bank balances at each branch
  4. DAvoid the need for any cash forecasting

Explanation

Concentration banking sets up collection points near customers so that cheques reach the firm sooner and clear faster. This reduces mailing, processing and collection float. It does not delay supplier payments, and idle local balances are what the system tries to cut by pooling funds centrally.

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