Question

which of the following is NOT a method used by firms to speed up cash collections?

1) using lockboxes to collect payments

2) move funds to the primary bank using electronic depository transfer

3) use wire transfers

4) use remote disbursement, that is third parties pay accounts payable

Answer 1

Option (2) is correct

Moving funds to the primary bank using electronic depository transfer is not a method to speed up cash collections.Rather it is an activity to transfer the funds that are collected already, to different bank account.

Option (1) is not the answer, because using lockboxes to collect payments is a method to speed up the payments as debtors can easily drop payment at the lockboxes situated at their convenient place.

Option (3) is not the answer, wire transfers is the fastest way to make the payment. Collections can be immediately received by using wire transfers.

Option (4) is not the answer, as one of the method to speed up the collection process is to appoint third parties to receive the payments. In this case third parties collects the payments in the areas where it is difficult to collect it by the firm. It will speed up the collection process.