Answer (D) is correct . A lockbox system is one strategy for expediting the receipt of funds. Customers submit their payments to a mailbox controlled by the bank rather than to the company’s offices. Bank personnel remove the envelopes from the mailbox and deposit the checks to the company’s account immediately. The remittance advices must then be transported to the company for entry into the accounts receivable system. The bank generally charges a flat monthly fee for this service.
Answer (A) is incorrect because A lockbox system is not related to compensating balances; a compensating balance may be required by a covenant in a loan agreement that requires a company to maintain a specified balance during the term of the loan.
Answer (B) is incorrect because A lockbox system is a process by which payments are sent to a bank’s mailbox, which is checked during normal post office hours.
Answer (C) is incorrect because The use of a lockbox system entails sending checks through the mail to a post office box. Thus, it does not reduce the risk of losing checks in the mail.
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