DEF Ltd. is looking at ways to improve its cash flow and has decided to extend the timing of its disbursements by one day. In addition, it is negotiating with its bank for the establishment of a lockbox system that will reduce the remittance time of deposits by 3 days. The bank will also provide the company with a detailed analysis of the receipts which saves the company $37,000 in wages. The companys daily remittances amount to $2 million and the going rate in the market is 3% per annum for money market funds. For this service the bank charges a monthly fee of $8,000 and would require the company to maintain a $900,000 compensating balance.

Advise DEF Ltd. whether or not they should put these changes in place.

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