Answer (D) is correct . Compensating balances are either (1) an absolute minimum balance or (2) a minimum average balance that bank customers must keep at the bank. These are generally required by the bank to compensate for the cost of services rendered. Maintaining compensating balances will not accelerate a company’s cash inflows because less cash will be available even though the amount of cash coming in remains unchanged.
Answer (A) is incorrect because Multiple collection centers throughout the country will reduce the time required to receive cash in the mail. For example, California customers of a New York firm would make payment to a West Coast center. Thus, the company would receive the cash two or three days sooner.
Answer (B) is incorrect because Direct deposit by customers into a lock-box also speeds cash into company accounts.
Answer (C) is incorrect because Special handling of large checks is a cost-effective way to deposit large amounts.
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