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

Which of the following is a correct description of 'concentration banking' as a cash management technique?

Concentration banking means customers pay to local collection centres or banks near them, and the collected funds are then moved to the firm's central account. This shortens mailing and clearing time, reduces collection float, and speeds up the availability of cash to the treasury.

  1. APaying all suppliers on a single date each month
  2. BCustomers remit payments to local collection centres or banks near them, and the funds are then transferred to the firm's central account, shortening mailing and clearing timeCorrect
  3. CHolding all surplus funds in a single fixed deposit
  4. DDelaying disbursements by issuing cheques drawn on distant banks

Explanation

Concentration banking uses multiple collection points near customers, with funds pooled to a main account. This reduces collection float. Delaying disbursements through distant banks is a different technique (remote disbursement) and does not describe it.

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