Post on 25-Jun-2015
CASH FLOATBINU JOSE
DANTA TOMASGIBY THOMAS
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 firm’s book.
Components/Types of FloatFLOAT – Difference between cash and bank records on account of non clearing of cheques.
NEGATIVE FLOAT - Related to Bills Receivable
POSITIVE FLOAT – Related to Bills Payable.
Collection Float• Invoicing Float•Mail Float• Processing Float•Collection Float
Disbursement /Payment Float•Mail Float• Processing Float•Collection Float
Negative Float-Collection Float• It occurs when the firm receive payments.• It is undesirable for a firm and it should be
minimized.• Collection float is the time which elapses between
the time a payer deduct a payment from its accounts ledger and the time when the payee actually receives the funds in actual form.
Collection Float = Invoicing Float + Mail Float+ Processing Float+ Clearing Float
Four types of Collection Float1.Invoicing Float • Invoicing float is the time it takes for a firm to
bill receivables.
The efficiency of the company’s internal
accounting and billing procedures
The efficiency of the company’s internal
accounting and billing procedures
Effect of Invoicing
Float
2. Mail Float Mail Float is the time the firm’s bill spends in the
mail on its way to the customer and the time the customer’s cheque spend in the mail on its way to the firm.
Firm Customer
Bill
Cheque
3.Processing Float When the firm’s 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 firm’s receipt of a payment and its deposit of the cheque for collection
It is the time between a firm’s 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
Company receive the cheque
Company deposits the cheque
Bank process and clear the cheque
Mail Float
Processing Float
Clearing Float
Positive Float- Disbursement /payment Float• Positive Float occurs when the firm makes the
payment• It allow the firm to maintain a control over the cash
for a long period of time. Disbursement Float is the time between when a firm
writes a cheque on available bank account fund and when the bank deduct the corresponding amount from the bank balance.
Firm –Issue Cheque
Supplier- Cash Credited to his bank account
Delay in Time for disbursement of
cash
Disbursement/Payment Float
Company Mail the cheque to Supplier
Supplier receive the cheque
Bank process and credits Supplier's
account
Supplier deposits the cheque
Mail Float
Processing Float
Clearing Float
Net Float• Difference between Payment Float and
Receipt Float
Net Float= Disbursement Float - Collection 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.
Lock Boxes system• Under a lock box system, customers are advised to mail
their payments to special post office boxes called lockboxes, which are attended to by local collection banks, instead of sending them to corporate headquarters.
• The local bank collects the Cheque from the lock box once or more a day, deposits the Cheque directly into the local bank account of the firm, and furnishes details to the firm.
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!