14.6 Understand the management of receipts and disbursements, including float, : 1415282
14.6 Understand the management of receipts and disbursements, including float, speeding up collections, slowing down payments, cash concentration, zero-balance accounts, and investing in marketable securities.
1) Receipts and disbursements management techniques are aimed at minimizing a firm's financing requirements by taking advantage of certain imperfections in the collection and payment system.
2) The entire process resulting from a check issue and mail by a payer company to a payee company (i.e., mail float, processing float, and clearing float) is disbursement float to the payer company and is collection float to the payee company.
3) Processing float is the delay between the receipt of a check by a payee and its deposit in firm's account.
4) Mail float is the delay between the deposit of a check by a payee and the actual availability of the funds.
5) Assuming that a firm has done all it can to stimulate customers to pay promptly and to select vendors offering the most attractive and flexible credit terms, it can further speed collections and slow disbursements by taking advantage of the "float" existing in the collection and payment systems.
6) Float exists when a payee has received funds in a spendable form but these funds have not been withdrawn from the account of the payer.
7) Collection float is experienced by a payer and is a delay in the receipt of funds.
8) Disbursement float is experienced by a payee and is a delay in the actual withdrawal of funds.
9) Collection float results from the lapse between the time that a firm deducts a payment from its checking account ledger and the time that funds are actually withdrawn from its accounts.
10) Disbursement float results from the delay between the time that a payer or customer deducts a payment from its checking account ledger (disburses it) and the time that a payee or vendor actually receives these funds in a spendable form.