Slowing down payments controlled disbursing the

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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 controlled disbursing 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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