Cash Management at Richmond Corporation

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Everest University

Financial Management
Dr. John Halstead
April 8th, 2011


Team D researched and worked out three problems to find out how Richmond Corporation, a mail order company which has grown extensively to four states due to being on the internet and because of the wide geographical area of its customers, now has to determined which cash management system will be the best for the company. The team has to provide answers to determine whether Richmond should proceed with the concentration banking system, the total net cash flow will be able to meet payroll and the cost of the transfer being indifferent between the two systems.


Richmond Corporation was founded 20 years ago by its president, Daniel Richmond. The company originally began as a mail-order company but has grown rapidly in recent years, in large part due to its Web site. Because of the wide geographical dispersion of the company’s customers, it currently employs a lockbox system with collection centers in San Francisco, St. Louis, Atlanta, and Boston.

Steve Dennis, the company’s treasurer, has been examining the current cash collection policies. On average, each lockbox center handles $235,000 in payments each day. The company’s current policy is to invest these payments in short-term marketable securities daily at the collection center banks. Every two weeks the investment accounts are swept, and the proceeds are wire-transferred to Richmond’s headquarters in Dallas to meet the company’s payroll. The investment accounts each pay .068 percent per day, and the wire transfers cost .20 percent of the amount transferred.

Steve has been approached by Third National Bank, located just outside Dallas, about the possibility of setting up a concentration banking system for Richmond Corp. Third National will accept the lockbox centers’ daily payments via...
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