Lockbox: Porter Corp. has just signed up for a lockbox. Management expects the lockbox to reduce the mail float by 2.3 days. The firm's remittances average $41,250 a day, with the average check being $165. The bank charges $0.39 per processed check. Assume that there are 270 business days in a year and their opportunity cost of funds is 5 percent. What will the firm's savings be from using the lockbox?

Question

Quizplus · Accepted Answer

The firm's savings from using the lockbox will be $4,743.75. The lockbox will reduce the mail float by 2.3 days, which means that the firm will receive its checks 2.3 days sooner. This will reduce the firm's average daily float by $41,250 * 2.3 = $94,875. The bank charges $0.39 per processed check, so the firm will save $0.39 * 41,250 * 270 = $4,743.75 per year.