Question

Which of the following is NOT a method used by firms to speed up cash collection? Question 5 options: Using lockboxes to collect payments. Move funds to the primary bank using electronic depository transfer. Use wire transfers. Use remote disbursement, that is third parties pay Accounts Payable.

Answer 1

Which of the following is NOT a method used by firms to speed up cash collection?

Generally companies won't use remote disbursement method that is third parties pay Accounts Payable due to delay in cash collections compare to other 3 methods. It takes more than 2 days time to get the cash. However in other methods cash will be collected with in a day time. Hence campiness won't prefer to use this method to speed up cash collections.

Use remote disbursement, that is third parties pay Accounts Payable: Remote disbursement is a cash-management technique that some businesses use to increase their float by taking advantage of the Federal Reserve System's check-clearing inefficiencies. A company that practices remote disbursement intentionally draws its checks on a bank in a location that is geographically remote from whomever it needs to send checks to. It does this to maximize disbursement float, which represents a reduction in book cash but no current change in actual cash in the bank. This means the company still has the money in its bank account and can keep earning interest on it. Using remote disbursement can also allow a company to keep a smaller amount of cash on hand and more of its money in higher-interest-paying accounts..

Lockbox collection system. A lockbox is a post office box maintained by a local bank for the purpose of receiving a firm’s remittances. Customers mail payments to this post office box, which is usually not more than a few hundred miles away.The bank empties the box several times each working day, deposits the payments in the firm’s account, puts the checks into the clearing system, and sends the firm a list of the payments received each day.

Move funds to the primary bank using electronic depository transfer: Movement of funds from the local collection center banks to the concentration bank in a timely manner. Also, the cost of this method of transferring funds is low; often the only cost involved is postage. An electronic depository transfer check can also be used to move funds from a local bank to a concentration bank.

Wire transfers: Once deposits enter the firm’s banking network, the objective is to transfer surplus funds (that is, funds in excess of any required compensating balances) from its local (collection) bank accounts to its concentration (disbursement) bank account or accounts. Two methods used to perform this task are wire transfers and depository transfer checks.