cash float

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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 thatare in the process of collection. In simple words, Float is the differencebetween the cash balance appear in thepassbook and that appear in the firms book. 4. COmpONENTS/TypES OF FLOATFLOAT Difference between cashand bank records on account ofnon clearing of cheques. NEGATIVE FLOAT - POSITIVE FLOAT Related to Bills ReceivableRelated to Bills Payable. Collection Float Disbursement /Payment Float Invoicing FloatMail 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 beminimized. Collection float is the time which elapses betweenthe time a payer deduct a payment from its accountsledger and the time when the payee actually receivesthe funds in actual form.Collection Float = Invoicing Float + Mail Float+Processing Float+ Clearing Float 6. Four types of Collection Float1.Invoicing Float Invoicing float is the time it takes for a firm tobill receivables.The efficiency of theThe efficiency of theEffect of companys internal companys internal Invoicing accounting andaccounting andFloatbilling proceduresbilling procedures 7. 2. Mail FloatMail Float is the time the firms bill spends in themail on its way to the customer and the time thecustomers cheque spend in the mail on its wayto the firm.BillFirm Customer Cheque 8. 3.Processing FloatWhen the firms office get the cheque and ifthe office machinery is lax, the cheque isdeposited with the bank not on the same daybut the next day.It is the time between a firms receipt of a payment and It is the time between a firms receipt of a payment and its deposit of the cheque for collectionits deposit of the cheque for collection 9. 4. Clearing Float It is the time from when the bank accept acheque for deposit to when it makes the fundsavailable in the firms account Bank Firm 10. Collection Float Customer Mail thecheque Mail FloatCompany receive the chequeProcessing 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 thepayment It allow the firm to maintain a control over the cashfor a long period of time. Disbursement Float is the time between when a firmwrites a cheque on available bank account fund andwhen the bank deduct the corresponding amountfrom the bank balance.Delay in Time for Supplier- Cash Firm Credited to hisdisbursement of Issue Cheque cashbank account 12. Disbursement/Payment FloatCompany Mail thecheque to SupplierMail Float Supplier receive the cheque Processing Float Supplier deposits thechequeClearing FloatBank process andcredits Suppliersaccount 13. Net Float Difference between Payment Float andReceipt FloatNet Float= Disbursement Float - Collection Float 14. Management of Float1. Speeding Up CollectionThe collection time comprises mailing time, Chequeprocessing delay, and the banks availability delay.The time lag in collection of receivables can beconsiderably reduced by managing the time takenby postal intermediaries and banks.For this purpose the company may also use lockboxes andcentralisation banking system. 15. Lock Boxes system Under a lock box system, customers are advised to mailtheir payments to special post office boxes calledlockboxes, which are attended to by local collectionbanks, instead of sending them to corporateheadquarters. The local bank collects the Cheque from the lock boxonce or more a day, deposits the Cheque directly intothe local bank account of the firm, and furnishes detailsto the firm. 16. Concentration Banking A firm may open collection centres (banks) indifferent parts of the country to save thepostal delays. Under this system, the collection centres areopened 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 thebank account. Cash is transferred only when the cheque ispresented for the payment to the bank. 18. Thank you!


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