2. CONTENTS
• Concept of Cash Float
• Different types or components of float
• Management of Cash Float
3. 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.
4. COmpONENTS/TypES OF FLOAT
FLOAT – Difference between cash
and bank records on account of
non clearing of cheques.
NEGATIVE FLOAT - POSITIVE FLOAT –
Related to Bills Receivable Related to Bills Payable.
Collection Float Disbursement /Payment Float
• Invoicing Float •Mail Float
•Mail Float • Processing Float
• Processing Float •Collection Float
•Collection Float
5. 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
6. Four types of Collection Float
1.Invoicing Float
• Invoicing float is the time it takes for a firm to
bill receivables.
The efficiency of the
The efficiency of the
Effect of
company’s internal
company’s internal Invoicing
accounting and
accounting and Float
billing procedures
billing procedures
7. 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.
Bill
Firm Customer
Cheque
8. 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
It is the time between a firm’s receipt of a payment and
its deposit of the cheque for collection
its deposit of the cheque for collection
9. 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
10. Collection Float
Customer Mail the
cheque
Mail Float
Company receive the
cheque
Processing Float
Company deposits
the cheque
Clearing Float
Bank process and
clear the cheque
11. 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.
Delay in Time for Supplier- Cash
Firm – Credited to his
disbursement of
Issue Cheque cash bank account
12. Disbursement/Payment Float
Company Mail the
cheque to Supplier
Mail Float
Supplier receive the
cheque
Processing Float
Supplier deposits the
cheque
Clearing Float
Bank process and
credits Supplier's
account
13. Net Float
• Difference between Payment Float and
Receipt Float
Net Float= Disbursement Float - Collection Float
14. 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.
15. 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.
16. 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.
17. 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.
