PRINCIPLES OF WORKING CAPITAL MANAGEMENT 2 Contents • • • • Meaning & need for inves/ng in current assets Gross working Capital and Net Working Capital Concept of opera/ng cycle & its rela/on to Working capital Working capital financing 3 Introduc;on • Tradi/onally, working capital has been defined as the firm’s investment in current assets. Current assets are required for day-‐to-‐day opera/ons of the firm. The assets keep changing from one form to another from viz. Stocks, Receivables and Cash. Working capital decisions are very important as they affect the liquidity of the business. • • working capital decisions typically affect the cash flows of the firm for a shorter /me frame. change more frequently . stocking etc.4 Features of Working capital decisions • Working capital decisions are typically • Short-‐term financial decisions. extending normally up to a maximum of one year • The concepts of risk and 3me value of money are less per0nent to working capital decision-‐making • They are modified from 3me to 3me unlike capital budge/ng decisions.e. i.. which are one-‐/me and irreversible • Concept of working capital is dynamic as market condi/ons with respect to credit. the higher the GWC of a firm.5 Concepts of Working Capital 1. (accounts receivable or book debts) bills receivable and stock (inventory). the bePer its liquidity posi/on. It is termed as managers’ concept of working capital. Other factors remaining the same. Gross Working Capital (GWC) 2. Increasing GWC affects profitability adversely as more funds get /ed up in current assets that have low/zero yield. • • • . Net Working Capital (NWC) Gross working capital (GWC) • • GWC refers to the firm’s total investment in current assets Current assets are the assets which can be converted into cash within an accoun/ng year (or opera/ng cycle) and include cash. debtors. It denotes the liquidity posi/on of the firm. bills payable. and outstanding expenses. Current liabili/es (CL) are those claims of outsiders which are expected to mature for payment within an accoun/ng year and include creditors (accounts payable).6 Concepts of Working Capital Net working capital (NWC) • • • NWC refers to the difference between current assets and current liabili/es. NWC can be posi/ve or nega/ve. • • Posi/ve NWC = CA > CL Nega/ve NWC = CA < CL . 7 Factors influencing Working Capital decisions Time – Opera/ng & Cash conversion Cycle Ac/vity-‐ Units produced / Sold / held & Costs Working Capital Policy of the company Current assets to total assets ra.o for different industries Industries IT Trading Pharma Engineering Metals Paper Shipping Current assets to total assets (%) 80-‐85 75–80 65–70 60–65 45–50 40–45 15–20 Nature of business Market & demand Technology Manufacturing policy Credit policy Opera/ng efficiency Infla/on . Acquisi. power and fuel etc. . 2. inventories into sales (either cash or credit sales) 3. resources into inventories 2. Credit sales into cash. The opera/ng cycle of a manufacturing company involves following phases: 1. Sale of the product either for cash or on credit. Credit sales create account receivable for collec/on. 3.on of resources such as raw material. labour. Manufacture of the product which includes conversion of raw material into work-‐in-‐progress into finished goods.ng Cycle Opera/ng cycle is the /me dura/on required to convert 1.8 Opera. ng cycle The length of the opera/ng cycle of a manufacturing firm is the sum of: • • Inventory conversion period (ICP).9 Opera. Debtors (Account receivable) conversion period (DCP). . 10 Gross Opera. GOC is given as follows: . Thus.ng Cycle (GOC) • The firm’s gross opera/ng cycle (GOC) can be determined as inventory conversion period (ICP) plus debtors conversion period (DCP). Typically.11 Inventory conversion period (ICP) Inventory conversion period is the total /me needed for producing and selling the product. it includes: Rawmaterial Inventory X 360 RMCP = Rawmaterial consumed Work − In − process Inventory X 360 WIPCP = Cost of production Finished Goods Inventory X 360 FGCP = Cost of goods sold . 12 Debtors (receivables) conversion period (DCP) • Debtors conversion period (DCP) is the average /me taken to convert debtors into cash. DCP represents the average collec/on period. It is calculated as follows: Sundry Debtors X 360 Debtors Conversion Period ( DCP ) = Annual Credit Sales . 13 Creditors (payables) deferral period (CDP) • Creditors(payables) deferral period (CDP) is the average /me taken by the firm in paying its suppliers (creditors). CDP is given as follows: SundryCreditorsX 360 Creditors Deferral Period (CDP) = Annual Credit Purchases . . • Net opera/ng cycle is also referred to as cash conversion cycle.14 Cash Conversion or Net Operating Cycle • Net opera/ng cycle (NOC) is the difference between gross opera/ng cycle and payables deferral period. Compute the operating cycle for the firm assuming that the information given is for one full year period (figures in Rs.15 Operating & Cash conversion cycle Example: Following information has been extracted from the financial statement of a manufacturing firm.75 4.5 200 5. Crore) Average Creditors outstanding Raw material purchases Average debtors outstanding Raw material consumed Cost of produc/on Cost of goods sold Sales Inventory of raw material Work – in -‐ progress Finished goods 15 90 6 60 145 157.75 6.80 . 03 days Gross Opera.ng Cycle or Cash Conversion Cycle .80 X 360 157.on Finished goods Inventory X 360 Cost of Goods Sold Ave.50 days = 16.80 days = 73.03 days = 60 days = 13. Sundry Debtors X 360 Credit sales 5.16 Solu.on: a) RMCP = b) WIPCP = c) FGCP = d) DCP = Raw material Inventory X 360 Raw material consumed WIP Inventory X 360 Cost of produc.76 days = 10. Sundry Creditors X 360 Credit purchases 15 X 360 90 Net Opera.97 days = 10.75 X 360 145 4.ng Cycle e) CDF = Ave.75 X 360 60 6.50 6 X 360 200 = 34. 37 73.63 78.18 -‐25.76 61.50 14.97 116.47 .93 12.14 0.65 61. Sojware Comp.15 11.54 CCC or NOC -‐33.36 65.55 -‐11. Sojware Comp.39 -‐22.47 17.78 72.41 0.81 37.15 13.63 36.98 CDP (days) 99.83 2.51 40.47 0.98 10.32 75.00 79. Sojware Personal care Personal care Steel Steel DCP (days) 15.12 -‐19.17 Cash conversion cycle of some companies Company ACC ( 2007) Ambuja Cements (2007) Tata Motors (2008) Ashok Leyland (2008) Wipro (2008) TCS (2008) Infosys (2008) HUL (2008) Colgate (2008) SAIL (2008) Tata Steel (2008) Source: FM text book by Jonathan Berk Industry Cement Cement Auto Auto Comp.83 88.27 27.29 23.84 87.39 93.35 9.00 34.10 58.91 87.23 109.13 13.25 70.09 ICP (days) 50.80 87.71 -‐62. This method is essen/ally based on the opera/ng cycle concept.18 Es. .ng Working capital • Current assets holding period • To es/mate working capital requirements on the basis of average holding period of current assets and rela/ng them to costs based on the company’s experience in the previous years.ma. To es/mate working capital requirements as a ra/o of sales on the assump/on that current assets change with sales. To es/mate working capital requirements as a percentage of fixed • Ra3o of sales • • Ra3o of fixed investment • investment. is referred to as permanent or fixed working capital. .19 Permanent and variable Working capital • • Permanent or fixed working capital • A minimum level of current assets. which is con/nuously required by a firm to carry on its business opera/ons. n g o r v a r i a b l e working capital • The extra working capital needed to support the changing produc/on and sales ac/vi/es of the firm is referred to as fluctua/ng or variable working capital. F l u c t u a . Profitability: Risk–Return Trade-‐off The Cost Trade-‐off Alterna3ve current asset policies Cost Trade-‐off .20 Key decisions in Working Capital Management • • • Current Assets to Fixed Assets Ra.o Liquidity vs. These policies could be • • • Long term Short term Spontaneous • Theore/cally. the policies of working capital financing can be categorized as: • • • Matching Conserva/ve Aggressive .21 Working Capital Finance Policies • The working capital financing policy may have a significant impact on the profitability–liquidity posi/on of the firm. However. 15 Cr Rs. 85 Cr Conserva. 30 Cr .ve Rs 115 Cr Nil. 100 Cr Aggressive Rs. any requirement over and above Rs 115 cr will need short term funding Rs.22 Working Capital Finance Policies Expected Financing requirement: -‐ Permanent long term requirement: Rs 100 crores ( Fixed & Current asset) -‐ Expected fluctua/on + or – 15% - To use combination of long term and short term finances Matching Long term finances Poten/al Short term finances Rs. Long term finances Short term Cost advantage Flexibility Liquid but risky Long term Less risky Long process Predictability Conserva3ve financing plan Aggressive financing plan Matching financing plan .23 Short vs. 25 lakh tons of cement per annum.on of Rs 10) Administra. The major raw material to manufacture cement is limestone which is obtained from the company's own mechanised mine located near the plant. The company produces cement in 200 kg bags.ve overheads Selling overheads Total cost Profit margin Selling price Add: Sale tax (10 per cent of selling price) Invoice price to consumers Rs 25 15 30 10 50 30 20 25 205 45 250 25 275 .lisa. Cost structure per bag of cement (es. its present capacity u.on given below.mated) Gypsum Limestone Coal Packing material Direct labour Factory overheads (including deprecia. From the informa. determine the net working capital (NWC) requirement of the company for the current year.on is 80 per cent.24 Case Study Strong Cement Company Ltd has an installed capacity of producing 1. 4) Debtors are extended credit for a period 3 months. other conversion costs are to be taken at 50 per cent). Limestone -‐ 1month.5 months.25 Addi. 6) Average . Coal -‐ 2.on: 1) Desired holding period of raw materials: Gypsum -‐ 3months. 25 lakh.me lag in payment of wages is approximately 0.5 month 1) Minimum desired cash balance is Rs. 3) Finished goods are in stock for a period of 1 month before they are sold. 5) Average .onal informa.me lag in payment of sales tax is 1. namely gypsum limestone and coal are required in the beginning.5 month and of overheads.5 months and Packing material -‐ 1.5 months 2) The product is in process for a period of 0. Coal -‐ 1 month and Packing material -‐ 0. 1 month. 7) The credit period extended by various suppliers are: Gypsum -‐ 2 months.5 month (assume full units of materials. . 70.500 70.5/12) — Raw material cost 100 per cent (Rs 25 + Rs 15 + Rs 30) — Other conversion costs (Rs 50 + Rs 20 cash factory overheads) × 0.25.5/12) Work-‐in-‐process: (5 lakh bags × Rs 105 × 0.25.833 .25.000 21.000 31.00.83.26 SOLUTION Statement showing determina.87.000 31.on of net working capital of Strong Cement Company Ltd Current assets: Minimum desired cash balance Raw materials: Gypsum (5 lakh bags* × Rs 25 × 3/12) Limestone (5 lakh bags* × Rs 15 × 1/12) Coal (5 lakh bags × Rs 30 × 2.5 Finished goods (5 lakh bags × Rs 170** × 1/12) Debtors (5 lakh bags × Rs 220** × 3/12) Total Rs 70 35 105 Rs 25.75.67.000 6.000 6.00.000 4.5/12) Packing material (5 lakh bags × Rs 10 × 1.25.333 2. 500 88.00. Rs 10 – selling overheads.16.79.on.08.54.41.es: Creditors: Gypsum (5 lakh bags × Rs 25 × 2/12) Coal (5 lakh bags × Rs 30 × 1/12) Packing material (5 lakh bags × Rs 10 × 1/24) Wages (5 lakh bags × Rs 50 × 1/24) Overheads (5 lakh bags × Rs 65 × 1/12) Sales tax (5 lakh bags × Rs 25 × 1.333 12.5/12) Total NWC 20.8 = 1 lakh ton/200 kgs = 5.000 bags **(Total cost. Rs 195 + sale tax.62.667 *1. Rs 205 – Deprecia.08.333 10.27 Current liabili.166 3.333 15.000 2.667 27.83.50.25 lakh tons × 0. Rs 25) ***(Cash cost. Rs 25) . RECEIVABLES MANAGEMENT . 29 LEARNING OBJECTIVES • • • • Establishing a sound credit policy Op/mum credit policy Explain the credit policy variables The nature and costs / benefits of factoring . incremental profit • • • produc/on and selling costs administra/on costs bad-‐debt losses .30 INTRODUCTION • Trade credit happens when a firm sells its products or services on credit and does not receive cash immediately • Impact of Credit sale • • Increase in sales -‐ Marke/ng tool Maximisa/on of sales Vs. collec/on period. type of customer… • Credit terms: • Credit terms for specific customers • Collec/on efforts: • Process for collec/on • Provisioning policy for aged debts . which includes • volume of credit sales.31 Purpose & features of Credit Policy • Purpose of Credit policy is to determine • Features Credit policy • Credit standards: • • • • Basis & type of corpora/ons to whom credit will be allowed Credit sales as a % of total sales Average days of credit Maximum amount of exposure to a single customer /client … 80-‐20 principle • Investment in receivables to op.mise returns. mum Credit Policy Credit policy aims at maximising the value of the firm. IRR = RRR Steps in achieving op/mum credit policy are: • Es/ma/on of incremental profit ( contribu/on) • Es/ma/on of incremental investment in receivable • Es/ma/on of incremental rate of return (IRR) • Comparison of incremental rate of return with required rate of return (RRR) . Credit policy is op/mum when.32 Op. 12 lakh cost per unit Rs 6. The current average collection period of the company is 25 days. the company is considering a more liberal credit policy. Which credit policy is Z 35 days Rs.on period sales the current level is Rs 8 and variable X 15 days Rs. To increase the sales.800 600 .400 1. 47 lakh desirable? Solution: Need to find out a) Incremental investment in Receivables b) Incremental rate of return (contribution / Incremental investment In AR) Cost calcula3ons: Average cost (Rs) Unit variable cost (Rs) Price (Rs) Total cost of sales (Rs lakh) Total variable cost (Rs lakh) Total fixed cost (Rs lakh) 8 6 10 2. If the collection period is extended. If the company Y 25 days Rs.33 Illustration: Delta Company has current sales of Rs 30 Crore (or 3000 lakh). 27 lakh required a return of 12 per cent on its investment. Average cost per unit at policy collec. The company is selling its product at Credit Increase in Increase in Rs 10 each. sales increase in the following manner. Required rate of return (%) 25 3. receivable invt. sales (Rs lakh).416 336 168 6.000 -‐ -‐ 2. Annual sales (Rs lakh) C. Investment in receivables at cost (Rs lakh). [F -‐ 167] H.8 2. Inc. Inc. at cost (Rs lakh).8% 12% Policy Y 25 25 50 3.ng credit period (days) A.407 267 100 4. contribu.047 47 2.34 Current policy Exis/ng Credit period Add: Change to the exis.4% 12% Policy Z 25 35 60 3. [D/G] I. [B -‐ 3.on (Rs lakh). Inc. [E/360 x A] G. Cost of sales (Rs lakh).027 27 10.012 12 4.428 405 238 7. New Credit period (days) B.9% 12% Conclusion: The revised credit policy would be acceptable if the IRR = or > RRR.000] D.400 167 -‐ -‐ -‐ 25 Policy X 25 15 40 3. [C x (10-‐6)/10] E. [B/10 x 6 + 600] F. .8 2. Incremental rate of return (%). 027 27 10. [E/360 x A] G. contribu. [C x (10-‐6)/10] E. receivable invt. [B -‐ 3. Inc. Required rate of return (%) 25 3. New Credit period (days) B. Investment in receivables at cost (Rs lakh). [B/10 x 6 + 600] F.4% 12% Policy Z 25 35 60 3. at cost (Rs lakh).400 167 -‐ -‐ -‐ 25 Policy X 25 15 40 3.8% 12% Policy Y 25 25 50 3.8 2.ng credit period (days) A. sales (Rs lakh). Cost of sales (Rs lakh).047 47 18.428 405 238 7.9% 12% Conclusion: The revised credit policy would be acceptable if the IRR = or > RRR. Inc.000 -‐ -‐ 2.416 336 168 6. .407 267 100 4. [F -‐ 167] H. Annual sales (Rs lakh) C.000] D.012 12 4. Incremental rate of return (%).8 2. [D/G] I.35 Current policy Exis/ng Credit period Add: Change to the exis.on (Rs lakh).8 2. Inc. 36 Factoring • Factoring can be defined as ‘a contract between the suppliers of goods/services and the ‘Factor’. including loans and advance payments Maintenance of receivables accounts of the supplier Collec/on of receivables which he has taken over Protec/on against default in payment by debtors . The main feature of Factoring are: • • • • • Factor performs a few or all of the following func/ons Finance the supplier. Under this contract the Factor takes over ( or ‘buys’) the debtors of the suppliers. Bills discoun/ng is a sort of borrowing while factoring is the efficient and specialized management of book debts along with enhancement of the client’s liquidity. 2. The client has to undertake the collec/on of book debt. the client is not protected from bad-‐debts. Bills discoun/ng is not a convenient method for companies having large number of buyers with small amounts since it is quite inconvenient to draw a large number of bills. 3. . and as such.ng 1.37 Factoring and Bills Discoun. Bill discoun/ng is always ‘with recourse’. 38 Types of Factoring • • • • Full service non-‐recourse Full service recourse factoring Bulk/agency factoring Non-‐no/fica/on factoring . 39 Benefits of Factoring • Factoring provides specialized service in credit management. and thus. helps the firm ’ s management to concentrate on its core competencies viz. Factoring helps the firm to save cost of credit administra/on due to the scale of economics and specializa/on. • . manufacturing and marke/ng. CASH MANAGEMENT . 41 Contents • • Need for cash management Cash planning -‐ budgets & Forecasts . 42 Cash Management • Cash management is concerned with the managing of: • • • cash flows into and out of the firm. and Financing deficit or inves/ng surplus cash . cash flows within the firm. 43 Facets of Cash Management • • • Cash planning Op/mum cash level Inves/ng surplus cash . Cash forecasts are needed to prepare cash budgets.44 Cash Planning • • Cash planning is a technique to plan and control the use of cash. . Cash Forecas0ng and Budge0ng • • Cash budget is the most significant device to plan for and control cash receipts and payments. The receipt and disbursements method The adjusted net income method • Short-‐term Forecas/ng Methods • • .45 Short term Cash Forecasts • The important func/ons of short-‐term cash forecasts • • • To determine opera/ng cash requirements To an/cipate short-‐term financing To manage investment of surplus cash. ng • The major uses of the long-‐term cash forecasts are: • It indicates as company’s future financial needs. It helps to improve corporate planning. Long-‐term cash forecasts compel each division to plan for future and to formulate projects carefully. • • . especially for its working capital requirements.46 Long-‐term Cash Forecas. It pinpoints the cash required to finance these projects as well as the cash to be generated by the company to support them. It helps to evaluate proposed capital projects. 47 Op.mum Cash Balance Op/mum Cash Balance under Certainty: Baumol’s Model • Op/mum Cash Balance under Uncertainty: The Miller– Orr Model • . 48 Baumol’s Model–Assump;ons: • • • • • The firm is able to forecast its cash needs with certainty. The firm’s cash payments occur uniformly over a period of /me. From 1 and 2 therefore, firm knows how much of cash it has to hold at any one point of /me. The opportunity cost of holding cash is known and it does not change over /me. The firm will incur the same transac/on cost whenever it converts securi/es to cash. 49 Baumol’s Model • The firm incurs a holding cost for keeping the cash balance. It is an opportunity cost; that is, the return foregone on the marketable securi/es. If the opportunity cost is k, then the firm’s holding cost for maintaining an average cash balance is as follows: Holding cost = k (C / 2) The firm incurs a conversion or transac;on cost whenever it converts its marketable securi/es to cash. Total number of transac/ons during the year will be total funds requirement, T, divided by the cash balance, C, i.e., T/C. The per transac/on cost is assumed to be constant. If per transac/on cost is c, then the total transac/on cost will be: • • Transaction cost = c(T / C ) The total annual cost of the demand for cash will be: Total cost = k (C / 2) + c(T / C ) The op/mum cash balance, C*, is obtained when the total cost is minimum. The formula for the op/mum cash balance is as follows: 2cT C* = k • Illustra;on: Baumol’s Model 50 ABC limited es/mates its total cash requirement as Rs 20 cr. next year. The company’s opportunity cost of funds is 16% per annum. The company will have to incur Rs 150 per transac/on when it converts its short-‐term securi/es to cash. Determine the op/mum cash balance. How much is the total annual cost of the demand for the op/mum cash balance? How many deposits will have to be made during the year? Given, T = total cash requirement for the yr = Rs 20 cr C= cost of conversion = Rs 150 per transac/on k = Holding cost = 16% per annum Therefore, the op/mum cash balance C* = C* = C*= C* = 2cT k 2(150)(200000000) 0.16 2(150)(200000000) 0.16 C * = 612,372 Total Cost = Rs 97980 made up of a. Cost of conversion = T / C* X ‘c’ = 20,00,00,000 / 612372 X 150 = Rs. 48990 b. Holding cost = (C* / 2) X k = 612372/2 X 0.16 = Rs 48990 Similarly.51 The Miller–Orr Model • The MO model provides for • • • two control limits–the upper control limit and the lower control limit a return point • If the firm’s cash flows fluctuate randomly and hit the upper limit. . it sells sufficient marketable securi/es to bring the cash balance back to the normal level (the return point). then it buys sufficient marketable securi/es to come back to a normal level of cash balance (the return point). when the firm’s cash flows hit the lower limit. 52 Miller-Orr model . 53 The Miller-‐Orr Model • The difference between the upper limit and the lower limit depends on the following factors: • • • the transac/on cost (c) the interest rate. (i) the standard devia/on (s) of net cash flows. • The formula for determining the distance between upper and lower control limits (called Z) is as follows: 1/ 3 (Upper Limit – Lower Limit) = (3/4 × Transaction Cost × Cash Flow Variance/Interest Rate) Upper Limit = Lower Limit + 3Z Return Point = Lower Limit + Z The net effect is that the firms hold the average the cash balance equal to: Average Cash Balance = Lower Limit + 4/3Z . on: Miller -‐Orr Model 54 XYZ company has a policy of maintaining a minimum cash balance of Rs 50 lakh.30. The annual interest rate is 15 per cent.141 Return point = Lower limit + z = 50. The transac/on cost of buying and selling securi/es is Rs 150 per transac/on.000 + 10.00. Solu/on: Upper Control Limit = Lower limit + 3Z Data given Lower limit = Rs 50 lakh 3Z = to be found out Z = difference (in Rs or $) between upper control limit and lower control limit Formula to find out Z = (3/ 4 X Transaction Cost X Cash Flow Variance / Interest Rate)1/3 = [3/4 X 150 X 20.714 Average cash balance = Lower limit + 4/3 Z = 50.15 /365)]1/3 = 10.00.714 = Rs 60. The standard devia/on of the company’s daily cash flows is Rs 20 lakh.30.Illustra.92.285 .00.714 Upper limit = 50.30.74.714) = Rs 80.714) = 63. Determine XYZ’s upper control limit. return point and average cash balance as per the Miller-‐Orr model.00.0002 / (0.30.000 + (4/3 X 10.30.000+(3 X 10. ng surplus cash in Marketable securi.Inves.es • 55 Selec/ng Investment Opportuni/es: • • • Safety Time to maturity Marketability . es: • • • • • • 56 Treasury bills Commercial papers Cer/ficates of deposits Bank deposits Inter-‐corporate deposits Money market mutual funds .Short-‐term Investment Opportuni. 57 Appendix . Features of Instruments of Collec.on in India 58 . through a clearinghouse. The clearing process has been highly automated in a number of countries. Instruments like cheques. demand drajs. . interest and dividend warrants and refund orders can go through clearing. or promissory notes do not go through clearing.59 Clearing • • • • The clearing process refers to the exchange by banks of instruments drawn on them. Documentary bills. or unan/cipated demands may cause large disbursements. however. It is a sound tool of managing daily cash opera/ons. suffers from the following limita/ons: • • . For example. It fails to highlight the significant movements in the working capital items.The Receipt and Disbursements Method • 60 The virtues of the receipt and payment methods are: • • It gives a complete picture of all the items of expected cash flows. • This method. collec/ons may be delayed. Its reliability is reduced because of the uncertainty of cash forecasts. and thus helps to keep a control on a firm’s working capital.61 The Adjusted Net Income Method • The benefits of the adjusted net income method are: • It highlights the movements in the working capital items. • • The major limita/on of this method is: • It fails to trace cash flows. its u/lity in controlling daily cash opera/ons is limited. It helps in an/cipa/ng a firm’s financial requirements. . and therefore. 62 Managing Cash Collec.ons and Disbursements • Accelera/ng Cash Collec/ons • • Decentralised Collec/ons Lock-‐box System Disbursement or Payment Float • Controlling Disbursements • . the difference is called disbursement or payment float. Some firms use the technique of ‘playing the float’ to maximize the availability of funds. the firms that delay in making payments may endanger its credit standing. While. However. When the firm’s actual bank balance is greater than the balance shown in the firm’s books. a centralized system may be advantageous.63 Controlling Disbursements • Delaying disbursement results in maximum availability of funds. for a proper control of disbursements. • • . for accelerated collec/ons a decentralized collec/on procedure may be followed.
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