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Unformatted text preview: firm does not have to be large to benefit
from a lockbox. Smaller firms can also benefit from a lockbox system. The benefit to small firms often comes primarily from transferring the processing of payments to the bank. Slowing Down Payments
The strategic use of mailing
points and bank accounts to
lengthen mail float and clearing
float, respectively. Hint Data on clearing time
among banks located in various
cities can be developed by the
firm itself. It also can be
obtained from a major bank’s
cash management service
department or purchased from
a firm that sells such
information. Float is also a component of the firm’s average payment period. In this case, the
float is in the favor of the firm. The firm may benefit by increasing all three of the
components of its payment float. One popular technique for increasing payment
float is controlled disbursing, which involves the strategic use of mailing points
and bank accounts to lengthen mail float and clearing float, respectively. This
approach should be used carefully, though, because longer payment periods may
strain supplier relations.
In summary, a reasonable overall policy for float management is (1) to colle...
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