## Managing Cash Collections and Disbursement
Two Main Objectives:
1. Collect receivables as quickly as possible
2. Delay payments legally within the permissible period
This improves liquidity and allows better control over working capital.
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### Types of Float
Float = Time delay between a sale and actual receipt of cash
| Type | Description |
|---|---|
| Billing Float | Time between sale and sending the invoice |
| Mail Float | Time cheque takes to reach the company by post |
| Cheque Processing Float | Time to process and deposit the cheque internally |
| Banking Processing Float | Time taken by bank to credit the amount |
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### Techniques to Reduce Float
#### 1. Concentration Banking
- A decentralized collection method
- Multiple collection centers in different geographic locations
- Customers send payments to local collection center → deposited in local bank → transferred to centralized head office account
Benefits:
- Reduces mail float and processing float
- Local deposits are faster and more efficient
- Funds quickly available at head office
#### 2. Lock Box System
- Bank-based system where customers mail payments to a Post Office Box (lock box) controlled by the company's bank
- Bank collects cheques multiple times a day, processes and deposits immediately
- Bank sends deposit reports to the company
Advantages:
- Eliminates mail float AND cheque processing float
- Speeds up funds availability
- No internal cheque handling needed by the company
Disadvantages:
- Costly — banks charge for these services
- Suitable only when cheque volumes are high and average cheque value is large
#### Decision Rule for Both Systems
> Use the system only if:
> Marginal income from earlier access to funds > Additional cost of system
>
> - If Cost > Benefit → Avoid
> - If Benefit > Cost → Implement
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### Controlling Payments (Delaying Outflows Legally)
- Make payments only on the due date, not earlier
- Use drafts or post-dated cheques to increase float
- Estimate cheque presentation timing; maintain only required bank balance
- Use outstation cheques sent by mail to gain postal delay