NorthAm Trucking is a long-haul trucking company serving customers all across the continental United States and parts of Canada and Mexico. At present, all billing activities — from preparation to collection—are handled by staff at corporate headquarters in Bloomington, Indiana. Payments are recorded and deposits are made once a day in the firm’s bank, Hoosier National. You have been hired to recommend ways to reduce collection float and thereby generate cost savings.
a. Suggest and explain at least three specific ways that NorthAm could reduce its collection float.
b. Assume your preferred recommendation will cut the collection float by four days. NorthAm bills $108 million per year. If collections are evenly distributed throughout a 365-day year and the firm’s cost of short-term financing is 8%, what savings could be achieved by implementing the suggestion?
c. If the cost of implementing your recommendation is $100,000 per year, based on your finding in part (b), should NorthAm implement it?