A Lock-Box Model

James McN. Stancill, Jr.
Additional contact information
James McN. Stancill, Jr.: University of Southern California

Management Science, 1968, vol. 15, issue 2, B84-B90

Abstract: Faced with the problem of trying to reduce investment in accounts receivable, a number of corporate finance managers have directed attention to the problem of undesired "float," i.e., the dollar amount of checks payable to the subject firm but unavailable for cashing because they are in process of transmittal via the mail system. One of the most direct ways to reduce such undesirable "float" is through the use of what is called a "lock-box" arrangement. "Lock-box" is the popular term applied to an arrangement whereby a firm in one area directs their customers in another (distant) area to send their checks to a post-office box in the customer's area (city). Arrangements are made with a bank in the selected city to withdraw the checks, cash them and wire-transfer the funds to the firm's principal bank. This article presents a decision rule model for the establishment of a lock-box. The form of the model is an inequality and delineates the relevant variables. While specific lock-box arrangements with banks vary, the model presents the variables involved in the two most popular arrangements. Use of this model would permit a finance manager to appraise the profitability of possible lock-box installations.

Date: 1968
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.15.2.B84 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:15:y:1968:i:2:p:b84-b90

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().