What is float? How do firms use float to increase cash management efficiency?

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What is float? How do firms use float to increase cash management efficiency?

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What is float? How do firms use float to increase cash management efficiency?

Explanation & AnswerSolution by a verified expert

Explanation

Float is the difference between the balance in an amount as per the company's bank records and the balance in an amount as per the company's checkbook. The floats are of 3 types:
 

Collection float - The amount of cheque that is not yet cleared but deposited in the bank.
Disbursement float - The amount of cheque that is not yet presented for payment but issued.
Net float - The difference between the balance shown by the ledger account of the firm and the balance shown by the bank account of the firm.

 
The cash management efficiency of the firm can be increased through float by:-

Reducing the length of the cash conversion cycle
Completely knowing the bank related procedures

Verified Answer

Float is the time gap between when the cheque is issued and when it is cleared.
 
The cash management efficiency of the company can be increased by knowing the use of the procedures that aim at controlling cash outflows and accelerating cash inflows.

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