Define float and its origins in the cash management process (that is, mail processing and transit)
What will be an ideal response?
The efficiency of the firm's cash management program can be improved by 1. accelerating cash receipts and 2.
improving the methods used to disburse cash. In simple terms, the firm improves its cash management system by
speeding up collections and slowing down disbursements. Note that there are three key events that delay the time it
takes the firm to actually get the customer's money. These delays are referred to as float. First, the customer sends the
payment to the firm through the mail. The time required to receive the check is called mail float. Second, the firm
processes the check internally to record the account to which the payment belongs and then sends the check on to the
firm's bank to begin the process of transferring funds from the customer to the company. The time required to process
the check by the company is called processing float. Finally, the company's bank sends the check through the
check-clearing system used by banks to actually transfer funds from the customer's account to the firm's account. The
time required to accomplish this is referred to as transit float. Speeding up the firm's collection process simply involves
reducing the float that enters into the collection process in each of these three ways.
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