On an average day, your ﬁrm receives $10,600 in checks from customers. These checks clear the bank in an average of 4 days. The applicable daily interest rate is .02 percent. What is the highest
Daily fee your ﬁrm should pay to completely eliminate the collection ﬂoat? Assume each month has
30 days.

Question

Quizplus · Accepted Answer

To completely eliminate the collection float, the firm needs to use a lockbox system or electronic funds transfer (EFT), both of which incur fees. The daily cost of the float is the product of the average daily checks received ($10,600) and the daily interest rate (.02% or 0.0002), which is $2.12. 
Multiplying this by the average clearing time (4 days) gives a total float cost of $8.48. This is the highest daily fee the firm should pay to completely eliminate the collection float. Therefore, the best choice is B.

On an Average Day, Your ﬁRm Receives $10,600 in Checks