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(^216) Financial Management
It could be defined as the time between the deposit of checks in bank and its
payment.
Due to the time difference, many firms are able to ìplay the float,î that is, to write
checks against money not presently in the firmís bank account.
There are different kinds of floats that the firm has to encounter. These include:
Collection Float
Time taken to realise the money after the company has received the cheque from the
debtors.
Mail Float
Time that elapses from the mailing of the cheque until its receipt.
Processing Float
Processing time after the cheque is received and before it is deposited with the bank.
Availability Float
Time taken from the deposit of the cheque to the funds being available in the bank.
The last two items together make up deposit float and all the three items make up the
collection float.
Float measurement
Float is usually measured in rupee-days, which are calculated by multiplying the time
lag in days by the rupee amount being delayed. Float can be measured either on each
item that is processed or on an average daily basis.
Cost of Collection Float
The cost is determined by the following formula:
money in float no. of days daily interest rate * frequency of payment
Value of Payment Information
Matching payments to accounts in a timely and accurate manner. The biggest utilisation
is to update the systems so that actual positions of funds in the accounts are available.
Value of Relationship with Payee
Delays in posting may send wrong information to customers. Could also cause delays