Question

In: Finance

One way a business can speed up collections is Lock Box Systems or Regional Collection Centers....

One way a business can speed up collections is Lock Box Systems or Regional Collection Centers. Explain how these can be used to speed up collections.

Solutions

Expert Solution

Lock Box Systems - Under Lock Box System, the customers who need to make payments to the company would be asked to send the payments through mail to special post office boxes called Lock boxes. A bank employee will then collect these payments and deposit it in the company's account instead of sendig them to corporate headquarters. After the bank employee deposits these payments he will furnish the particulars of deposits to the company.

Few Advantages of using Lock Box Systems that help in speeding up collections are:

  • The mailing time is reduced as the customer sends the payment to his nearby post office instead of sending it directly to the company.
  • Lock Box Systems speeds up the processing of payments made by the customers.
  • Faster realisations as deposits will be directly made by the bank employee in the company's account.

Regional Collection Centers - A company may open collection centres in different parts of the country to save the delay caused by post. These centres would be opened as near as possible to the location of the customers so that they can easily make their payments in such centers. The company will ask its customers to make their payments to the Regional Collection Centers and not to send them directly to the company. The collection received by Regional Collection Centers are deposited in a local bank account and funds are from here funds are directly transferred to the company's bank account. Therefore the entire process saves up the time of collection of payments and results in speeding up collections.


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