Cash management originated as a means of dealing with float. Incidentally, the first modern cash management technique, lockbox banking was an attempt to reduce both mail and processing times in order to make incoming funds more quickly available to the company.
So what is float?
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Float, for the PAYER refers to the time that elapses between the point that a company issues a cheque and the point at which the funds covering that cheque are actually withdrawn from its accounts. For the PAYEE firms, float represents the time between the check’s issuance and the availability of good(usable) funds in its accounts |
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There are various types of float viz: 1.0 Mail time-the period between the issuing and mailing of a check and the time that it is received by the payee 2.0 Processing time-once the check is received by the payee, a certain amount of time will be generally elapse before it is deposited in the bank. 3.0 Collection time-the amoun of time that it takes for the funds to be transferred through the banking system from the account of the payer to that of the payee. |
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Salient point: Besides the above, please note that there is another interesting float which is the BILLING float which refers to the time lapse where the seller who have sold/delivered the goods to the buyer but wasted time to prepare and mail its sales invoice to the buyer. |