northAm trucking is a long-haul trucking company that serves customers all acros
ID: 2681823 • Letter: N
Question
northAm trucking is a long-haul trucking company that serves customers all across the continental united states and parts of canada and mexico. at present, all billing activities-from preparation to collection- are handled by staff at corporate headquarters in bloomington, Indiana. Payments are recorded and deposits are made once a day in the firm's bank, Hoosier National. You have been hired to recommend ways to reduce collection float and thereby generate cost savings.a.suggest and explain at least three specific ways that NorthAm could reduce its collection float.
b. assume your preferred recommendation will cut the collection float by four days. northAm bills $108 million per year. if collections are evenly distributed throughout a 365-day year and if the firm's cost of short-term financing is 8%, what savings could be achieved by implementing the suggestion?
c. suppose the annual cost of implementing your recommendation is $100,000. in view of your answer to part (b), should NorthAm implement it? why? or why not?
PLEASE SHOW AND EXPLAIN THE WORK (CALCULATIONS PLEASE) ONLY
Explanation / Answer
SOLUTION:
a) Three ways in which float can be reduced:
1) Earlier billing or outsourcing the billing function. The respective branches can also carry their own billing process.
2) Use of Lockbox system.
3) Use of concentrated banking.
b) Average payment received per day $295,890.41
Number of days saved to get money 4
Return on marketable securities 0.0219%
Return $259.41
Less: Daily Expense $-
Net Benefit $259.41
The recommendation is resulting in the net benefit of $259.41 per day, therefore, it shall be implemented.
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