Page 281 - DMGT405_FINANCIAL%20MANAGEMENT

Unit 13: Management of Cash

But this money isn’t available immediately to the company. The bank doesn’t have the money Notes
till it has sent the cheque and received payment from the customer’s bank. Since the bank has to
wait, it makes U Co. Ltd. wait too – usually 1 or 2 business days. In the meantime, bank will
show that U Co. Ltd. has an available balance of 10 lakhs and availability float of 100,000.

It may be noted that the company gains as a result of payment float and loses as a result of the
availability float. The difference is often termed the net float. In our example, the net float is
100,000. The company’s available balance is therefore 100,000 greater than the balance shown
in its ledger.

The financial manager’s concern is with the available balance and not with the company’s ledger
balance. If it is known that it may take a week or two before some of the cheques are presented
for payment, one may be able to get by with a smaller cash balance. This game is often called
playing the float. One can increase the available cash balance by increasing the net float.

13.2.2 Managing Float

There are several kinds of delay and so people in the cash management refer to several kinds of
float.
Figure 13.1: Several Kinds of Fleat

Cheque mailed

Mail float
Cheque received
Recipient sees delays Payee sees delays
as collection float Processing float as payment float

Cheque deposited

Availability float Presentation float

Cash available to recipient Cheque charged to payers account

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