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Deposit slips along with payment enclosures are sent

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Unformatted text preview: of mailing payments to the company, customers mail payments to a post office box. The firm’s bank empties the post office box regularly, processes each payment, and deposits the payments in the firm’s account. Deposit slips, along with payment enclosures, are sent (or transmitted electronically) to the firm by the bank so that the firm can properly credit customers’ accounts. Lockboxes are geographically dispersed to match the locations of the firm’s customers. A lockbox system affects all three components of float. Lockboxes reduce mail time and often clearing time by being near the firm’s customers. Lockboxes reduce processing time to nearly zero because the bank deposits payments before the firm processes them. Obviously a lockbox system reduces collection float time, but not without a cost; therefore, a firm must perform an economic analysis to determine whether to implement a lockbox system. 622 PART 5 Short-Term Financial Decisions Lockbox systems are commonly used by large firms whose customers are geographically dispersed. However, a...
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