Diversified companies are made up of divisions, each of which is a separate business. Large companies have divisions spread over the entire country. In such companies, most treasury functions are centralized whereas most accounting functions are carried out in the individual divisions.
The cash management function controls the collection of revenues and the disbursement of funds from various bank accounts. It makes sure that the company never runs out of cash by monitoring outflows and having lines of bank credit ready in case temporary shortages occur. Today’s banking system is linked electronically so that cash can be transferred around the country immediately.
The credit and collection function decides whether a particular customer can be sold to on credit. After the sale, it is responsible for following up to ensure that the bill is paid. Customers are often reluctant to pay because of problems and misunderstandings with sales or service departments.
If you were designing the finance department of a diversified company, would you centralize these functions or locate them in the remote divisions? Why?
Address each function separately.