ABC Company has a number of customers in the province who usually pay on time but because of the mailing time, processing time and clearing time, cash cannot be obtained as payment is made. A bank has offered to provide the company with a lockbox system at a fixed fee of Php800 per month and a variable fee of Php6 for each payment processed by the bank.

The Company believes it would benefit from this system since it receives an average of 80 payments a day, each averaging Php5,000. With the lockbox system, the companys collection float will decrease by 8 days. Money market securities earn 6% per year.