Chap 9
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Copyright Copyright 2005 by Thomson Learning, Inc 2005 by Thomson Learning, Inc Chapter 9 Chapter 9 Cash Collection Systems Cash Collection Systems
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Transcript of Chap 9
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Chapter 9Chapter 9Cash Collection SystemsCash Collection Systems
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
The Cash Flow TimelineThe Cash Flow Timeline
OrderOrder Order Order Sale Sale Payment Sent Cash Payment Sent Cash PlacedPlaced Received Received Received Received Accounts Accounts CollectionCollection < Inventory > < Receivable > < < Inventory > < Receivable > < Float Float > >
Time ==>Time ==> Accounts Disbursement Accounts Disbursement
< Payable > < Float >< Payable > < Float > Invoice Received Payment Sent Cash DisbursedInvoice Received Payment Sent Cash Disbursed
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Learning ObjectivesLearning Objectives
To understand the various options firms have to To understand the various options firms have to collect customer payments.collect customer payments.
To differentiate between the various collection To differentiate between the various collection system and choose that system best suited for the system and choose that system best suited for the company.company.
To collect the basic data necessary for a lockbox To collect the basic data necessary for a lockbox study.study.
To understand how a lockbox model works.To understand how a lockbox model works.
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
The Cash Flow Timeline for The Cash Flow Timeline for Collection FloatCollection Float
CheckCheck CheckCheck Check Check Good Funds Good FundsMailedMailed Received Received Deposited Deposited Received Received
TimeTime => => MailMail Processing Processing Availability Availability FloatFloat Float Float Float Float
Collection FloatCollection Float
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Cost of FloatCost of Float
Remittances x Collection Float = Dollar-Day FloatRemittances x Collection Float = Dollar-Day Float$ 50,000$ 50,000 2 2 $ 100,000 $ 100,000 1,200,0001,200,000 5 5 6,000,000 6,000,000 500,000500,000 7 7 3,500,000 3,500,000
1,0001,000 10 10 10,000 10,000-------------------------- ------------- -------------$1,751,000$1,751,000 $9,610,000 $9,610,000
Average Dollar-Day Float = Dollar-Day Float/Days in monthAverage Dollar-Day Float = Dollar-Day Float/Days in monthAverage Collection Float = Dollar-Day Float/ RemittancesAverage Collection Float = Dollar-Day Float/ RemittancesAnnual Cost of Float = Average Dollar-Day Float x RateAnnual Cost of Float = Average Dollar-Day Float x Rate
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Types of Collection SystemsTypes of Collection Systems
Company processing centersCompany processing centers
Lockbox systemsLockbox systems
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Company Processing CentersCompany Processing Centers
Decentralized collection systemsDecentralized collection systems
Centralized collection systemsCentralized collection systems
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Lockbox SystemsLockbox Systems
RetailRetail WholesaleWholesale Cost Factors, Eq 9.1Cost Factors, Eq 9.1
TC = N x ((F x D x i) + VC) + FCTC = N x ((F x D x i) + VC) + FC
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Alternative Collection SystemsAlternative Collection Systems
Preauthorized paymentsPreauthorized payments Electronic corporate trade paymentsElectronic corporate trade payments
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Lockbox Location StudyLockbox Location Study
Customer groupsCustomer groups
Remittance sampleRemittance sample
Mail availability scheduleMail availability schedule
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
The Lockbox ModelThe Lockbox Model
Complete enumerationComplete enumeration
Other techniquesOther techniques
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
Lockbox Bank SelectionLockbox Bank Selection
ConsortiumsConsortiums
Multiple processing centersMultiple processing centers
Movement toward nationwide branchingMovement toward nationwide branching
Copyright Copyright 2005 by Thomson Learning, Inc. 2005 by Thomson Learning, Inc.
SummarySummary
Once customer has initiated payment, the financial Once customer has initiated payment, the financial manager must have an efficient process to convert manager must have an efficient process to convert the payment medium into cash.the payment medium into cash.
Two systems were analyzed: company processing Two systems were analyzed: company processing centers and lockbox systems.centers and lockbox systems.
A lockbox system can be designed to collect retail A lockbox system can be designed to collect retail payments or wholesale payments.payments or wholesale payments.
A cost equation was developed and a lockbox model A cost equation was developed and a lockbox model developed to optimize the collection system.developed to optimize the collection system.
The chapter concluded by demonstrating many of the The chapter concluded by demonstrating many of the principles discussed through the use of a case study.principles discussed through the use of a case study.
