ADMN 4300H Lecture Notes - Lecture 9: Transaction Cost, Opportunity Cost, Net Present Value
30 Mar 2020
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Determining the target cash balance: a firm"s desired cash level as determined by the trade-off between carrying costs and shortage costs, adjustment costs (shortage costs) costs associated with holding too little cash. Float management involves controlling the collection and disbursement of cash written and when cheques are presented. Size of float depends on the dollar amount and the time delay: delay = mailing time + processing delay + availability delay. Ways to reduce float time: over-the-counter systems. Lockbox systems: electronic collection systems, credit cards, preauthorized payments, point-of-sale transfers / debit cards, electronic trade payables. Example: accelerating collections: your company does business nationally and currently all cheques are sent to the headquarters in toronto. You are considering a lock-box system that will have cheques processed in vancouver and halifax. Slowing down payments can increase disbursement float but it may not be ethical or optimal to do this: controlling disbursements.
