A Game Theoretic Approach to Collections and Disbursements

Yair E. Orgler and Yair Tauman ()
Additional contact information
Yair E. Orgler: Faculty of Management, The Leon Recanati Graduate School of Business Administration, Tel Aviv University, Tel Aviv, Israel

Management Science, 1986, vol. 32, issue 8, 1029-1039

Abstract: Many firms use lock boxes serviced by local depository banks in an attempt to reduce collection float. Likewise, an increasing number of large firms use controlled disbursing to pay their bills, in order to increase and control their disbursement float. Almost all the literature treats the lock box location problem and the disbursement bank location problem separately. The purpose of this paper is to examine simultaneously the optimal collection strategies of sellers and the optimal payment strategies of buyers. Our analysis involves multiple periods where the decisions of each party take into consideration the potential strategies of the other. That is, the collection-payment problem is analyzed both as a two-party and a multiple-party game. The rationale for casting the problem in a game theoretic framework is quite simple: When a seller selects lock boxes and depository banks he takes into consideration the fact that his buyers may use controlled disbursing banks. Likewise, when buyers select disbursing banks or branches they realize that the seller may shift the location of the designated lock boxes in response. Obviously, our analysis is relevant primarily for firms that manage large amounts of payments and collections and use sophisticated cash management techniques.

Keywords: cash management; collection float; controlled disbursing; disbursement float; lock boxes; subgame perfect equilibrium (search for similar items in EconPapers)
Date: 1986
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.32.8.1029 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:32:y:1986:i:8:p:1029-1039

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().