Bhushan Cosmetics was established 15 years ago. In the beginning, it was limited to mail-order business but now it is carrying out full-fledged business over a well spread geographic area. In view of...

Bhushan Cosmetics was established 15 years ago. In the beginning, it was limited to mail-order business but now it is carrying out full-fledged business over a well spread geographic area. In view of a very big area where its customers are spread over, it is in a mood to restructure its cash collection policy. Presently, it has 20 lock box centres. Each centre handles Rs. 60,000 of collection per day. The collections are invested in short-term marketable securities every day at the collection centre banks. After every 15 days, the invested amount is wire transferred to the head office. The income from the investment is 0.012 per cent per day and the wire transfer cost is 0.15 per cent of the amount transferred. Bhushan Industries is considering setting up a concentration banking centre which will accept daily collections from the lock-box centres that will be passed on to the head office through clearing. The clearing delay is one day. The cleared funds will be deposited in a short-term account yielding 0.015 per cent a day. Each clearing transfer costs Rs. 150. The finance manager has to decide whether the new alternative is useful.

1. Find the size of total net cash flow from the existing lock box system.

2. Do you advocate for the new collection system based on concentration banking?