Académique Documents
Professionnel Documents
Culture Documents
CONTENTS
Concept of Cash Float Different types or components of float Management of Cash Float
What is Float?
Bankers define floats as cash obligation that are in the process of collection. In simple words, Float is the difference between the cash balance appear in the passbook and that appear in the firms book.
Components/Types of Float
FLOAT Difference between cash
NEGATIVE FLOAT -
POSITIVE FLOAT
Collection Float Invoicing Float Mail Float Processing Float Collection Float
Four types of Collection Float 1. Invoicing Float Invoicing float is the time it takes for a firm to bill receivables.
2. Mail Float
Mail Float is the time the firms bill spends in the mail on its way to the customer and the time the customers cheque spend in the mail on its way to the firm.
Bill Firm Cheque Customer
3.Processing Float When the firms office get the cheque and if the office machinery is lax, the cheque is deposited with the bank not on the same day but the next day.
It is the time between a firms receipt of a payment and its deposit of the cheque for collection
4. Clearing Float It is the time from when the bank accept a cheque for deposit to when it makes the funds available in the firms account
Bank
Firm
Collection Float
Customer Mail the cheque Mail Float Company receive the cheque Processing Float Company deposits the cheque Clearing Float
Disbursement/Payment Float
Company Mail the cheque to Supplier Mail Float
Supplier receive the cheque Processing Float Supplier deposits the cheque Bank process and credits Supplier's account Clearing Float
Management of Float
1. Speeding Up Collection
The collection time comprises mailing time, Cheque processing delay, and the bank's availability delay. The time lag in collection of receivables can be considerably reduced by managing the time taken by postal intermediaries and banks.
For this purpose the company may also use lockboxes and centralisation banking system.
Concentration Banking A firm may open collection centres (banks) in different parts of the country to save the postal delays. Under this system, the collection centres are opened as near to the debtors as possible, hence reducing the time in dispatch, collection etc.
2. Delaying Payment Payable centralization Payable through Draft Controlled Disbursement Accounts Zero Balanced account:A firm does not keep any cash balance in the bank account. Cash is transferred only when the cheque is presented for the payment to the bank.
Thank you!