Question

1.List the costs and benefits of running a cash concentration system

2.Describe the components of disbursement float

Answer 1

1]	Cash concentration system is a corporate treasury management system
	in which a centralised account is designated as the concentration bank
	account to which amounts from bank accounts located at other places
	are transferred on a regular basis. All payments are made from this
	concentration account.
	Benefits:
	*Reducing mail float as checks are banked locally.
	*Better planning of cash outlfows and inflows.
	*Avoiding idle funds at any location, which, prevents/reduces availment
	of overdraft and payment of interest.
	*Surplus cash can be deployed better.
	*Ease of control over cash at bank as payments are made only from a
	centralised account.
	Costs:
	*Frequent transfer of funds to the centralised account will attract higher
	service charges from the bank.
	*Payment float will get reduced, as payments are not made from
	distant branches.
2]	Disbursement float is the time that lapses between writing a check and
	the reduction of funds from one's account when the check is honoured
	[paid].
	The components of disbursement float are:
	a] Mail float:
	This is the time taken from the writing of a check till it reaches the payee.
	b] Processing float:
	It is the time taken by the payee for depositing the check once it is
	received at his end.
	c] Clearance float:
	It is the time that lapses between the deposit of check by the payee and
	the moment the check amount is reduced from the firm's bank account.