Accounts Receivable & Collections
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J&S Snowmobile manufactures and sales snowmobiles throughout the country. J & S has determined that through the establishment of local collection centers around the country, they can speed up the collection of payments by one and one-half days. Furthermore, the cash management department of his bank has indicated to them that they can defer their payments on their accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in California.
3a. If the company has $6 million per day in collections and $4 million per day in disbursements, how many dollars will the cash management system free up?
3b. If the company can earn 10 percent per annum on freed up funds, how much will the income be?
3c. If the total cost of the new system is $800,000 should it be implemented?
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Solution Summary
The solution explains how to decide if a system to speed up collections of accounts receivables should be set up.
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a. The collections will be speeded up by 1.5 days and so the cash freed up from quicker collections is ...
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