Lock Box System - Colburn Inc
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Colburn Inc. is considering a lock box system. The firm has analyzed its credit receipts and determined the following:
Average time checks are in mail -3 days
Average internal check processing time-3 days
Average time to clear the banking system -2 days
Total credit sales - 180 million
Average check --$10,000
Colburn funds its accounts receivable with short-term debt at *%. First Bank has indicated that its lock box system will reduce mail float by an average of one day and eliminate internal processing time. The cost of the system is $0.50 for each check processed, plus 0.05% of gross revenues processed. Should colburn implement the lock box system?
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Solution Summary
The solution finds out whether Colburn Inc should implement lock box system.
Solution Preview
Total days to receive and deposit payments from customers = 3+3+2 = 8 days
Total days using Lockbox system = 8 - 1 - 3 = 4 days
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