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Methods of accelerating cash inflow PPT

  2. CASH MANAGEMENT SYSTEM The basic premix of sound cash management is to ensure that cash inflows and outflows are effectively controlled and utilized. The effectively controlled cash flow, firms must implement adequate cash management techniques. The cash management system in any business organization receipts its objective by; (a) Accelerating the receipts / accelerating inflow of cash (b) Decelerating cash outflow
  3. ACCELERATING INFLOW OF CASH •An important function of the cash management system is the prompt collection of funds. This process involves speeding up of the conversion of receipts into available funds. •The difference between balance shown in the firm’s account book and the balance in the bank’s book represents float. The three kinds of delays or floats in the cash collection process are ; (i) Postal float (ii) Lethargy (iii) Bank float
  4. METHODS OF ACCELERATING CASH INFLOW The three methods of accelerating cash inflows are: (i) Concentration Banking (ii)Lock-box System (iii)Pre-authorized Payment System
  5. CONCENTRATION BANKING  It is a system of decentralizing collections.  According to this system, a large number of collection centers are established by the firm in different areas.  The firm opens its bank account in local bank in different areas, where it has collection centers.  The collection centers are required to collect cheques from their customers and deposit them in local bank account.  Instructions are given to the local collection centers to daily transfer funds over a certain limit telegraphically to the bank at the Head office.  Disbursements are made on the basis of daily reports from the Head office.
  6. ADVANTAGES OF CONCENTRATION BANKING  It speeds up collection of payments, and firm gets the use of the funds more quickly.  The float related to cash receipts is shortened.  Official bank cheques which are pre printed can transfer funds in a less expensive way than transferring funds between accounts.
  7. LOCK-BOX SYSTEM  Lock-boxes are post office boxes rented by the firm at one or more locations near its customers.  A nearby bank collects payments made to that address on behalf of the firm, deposits them and sends a record of deposit to the collecting firm. The firm’s local bank is given the authority to pick remittance directly from the post office box and deposit the cheques in the firm’s account.  Standing instructions are given to the local bank to transfer funds to the Head office when they exceeds a particular limit.
  8. ADVANTAGES OF LOCK-BOX SYSTEM  Rapid conversion of receivables in to cash.  saves mailing time of customers. Reduce cost associated with manual preparation of daily deposits.  saves company’s processing time.  provides early knowledge of dishonest cheques.  cheques are usually drawn on local bank; so it reduces the availability float.  reduces uncertainties attached to the traditional postage system.
  9. Pre-authorized Payment System  Financial transaction in which one person withdraws funds from another person's bank account.  Formally, the person who directly draws the funds ("the payee") instructs his or her bank to collect (i.e., debit) an amount directly from another's ("the payer's") bank account designed by the payer and pay those funds into a bank account designated by the payee.  Before the payer's banker will allow the transaction to take place, the payer must have advised the bank that he or she has authorized the payee to directly draw the funds.  It is also called pre-authorized debit (PAD) or direct debit.
  10. Advantages of pre-authorized payment system For organization For customers Improved Cash flow Cost saving Greater control Time saving Increased customer loyalty Improved Financial Management and retention Secure Resource saving Trusted method of payment Secure Environmentally friendly