Cash Management is one of the key element of any working capital management policy. Most of the firms in industry are critically evaluating cash management policy, similarly, the Xerox as well. Currently the company is in a dilemma of be centralized or be decentralized. Below given is the situation the company is facing related to its cash management.

The Company, which can earn 12% on Capital market instruments, currently has a lockbox arrangement with a Suburb bank for its Southern customers. The bank handles Rs 6,000,000 a day in return for a compensating balance of Rs 4,000,000. The Company has discovered that it could divide the Southern region into a southnortheren region (with Rs 2,000,000 a day in collections, which could be handled by a Rout bank for a Rs 2,000,000 compensating balance) and a southwestern region (with Rs 4,000,000 a day in collections, which could be handled by an Sroup bank by a Rs 4,000,000 compensating balance). In each case, collections would be one-half day quicker than with the Suburb arrangement.

a)On the basis of net annual benefit / (or cost) suggest the company for being with Suburb or they must divide customers on south east & south west basis for business cash management by Rout & Sroup Banks.

b)The Suburb bank has offered to handle the collections strictly on a fee basis (no compensating balance) & the company forced to retain relationship with Suburb than suggest the maximum fee affordability of the company.