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

In treasury management, which of the following is the primary objective of a firm's cash concentration (pooling) arrangement across its many bank accounts?

The main purpose of cash concentration or pooling is to bring surplus balances from scattered collection accounts into one central account, so the treasury can control liquidity, reduce idle funds and borrowing, and invest the combined surplus more effectively.

  1. ATo move surplus balances from scattered collection accounts into a central account so that funds can be managed and invested togetherCorrect
  2. BTo delay the issue of cheques to suppliers beyond their due dates
  3. CTo convert all short-term borrowings into long-term debt
  4. DTo increase the number of bank accounts so that float is maximised

Explanation

Concentration banking and cash pooling gather funds from many local collection accounts into one central account. This lets the treasury cut idle balances, reduce borrowing and invest the pooled surplus. Delaying payments is a disbursement tactic, not the purpose of concentration.

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