When Frank's Fertilizer Company bills its customers, it has them send their payments to an address that is just for receiving payments, instead of directly to the company's mailing address. Although this system costs Frank's Fertilizer Company a lot of money, it is worth it because the company receives thousands of checks from customers each business day. What system is this company using to receive its payments?

Question

Quizplus · Accepted Answer

In this scenario, Fred's Fertilizer Company is using a lockbox, which is simply an address for receiving payments, instead of having customers send payments directly to the company's mailing address. Using a lockbox allows the bank to get the money into the company's checking account much more quickly than if the payments had been submitted directly to the company. However, there is no free lunch: The costs associated with lockbox systems make them worthwhile only for those companies that receive thousands of checks from customers each business day.

When Frank's Fertilizer Company Bills Its Customers, It Has Them