What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system?
To determine the minimum reduction in the time to justify the use of a lock-box system, you would need to compare the costs and benefits associated with implementing the lock-box system. Here's how you can approach it:
1. Identify the current time and cost involved in collecting and processing each check without a lock-box system. This includes activities like receiving the check, depositing it, and recording the payment. Make sure to track the time spent and any direct or indirect costs associated with these processes.
2. Estimate the time and cost savings that could be achieved by implementing a lock-box system. The lock-box system allows customers to send their payments directly to a designated lock-box address instead of the company's main address. This reduces the time it takes for the check to reach the company and streamlines the collection and processing process.
3. Calculate the potential reduction in time and cost for each check processed using the lock-box system. This can be done by comparing the current process to the projected process with the lock-box system in place. Consider factors such as reduced mail transit time, faster remittance processing, and any additional efficiency gains that the lock-box system could provide.
4. Determine the minimum reduction needed based on your organization's financial goals and risk tolerance. This will vary based on the specific circumstances of your business. If the potential time and cost savings surpass the threshold needed to cover the expenses associated with implementing and maintaining the lock-box system, it may be justified.
It's important to note that this calculation will be specific to each organization and may require input from relevant stakeholders such as finance and operations departments. Additionally, considering other qualitative factors such as the need for improved cash flow or reduced payment delays can also influence the decision-making process.