Float management is the process of monitoring and managing the various types of float that exist within a company’s cash management system, with the goal of optimizing cash flow and minimizing the cost of float.
Measuring float involves tracking the amount of time that funds remain in each type of float, including disbursement float (the time delay between when a payment is initiated and when it is actually debited from the company’s bank account), collection float (the time delay between when a payment is received and when it is actually credited to the company’s bank account), and net float (the difference between the total amount of funds that a company is owed and the total amount of funds that it owes).
By measuring float, companies can gain a better understanding of their cash flow patterns and identify opportunities to optimize the timing and availability of funds. This can help to reduce the cost of float, which can include expenses such as bank fees, interest charges, and the opportunity cost of funds that are tied up in float.
The cost of float can vary depending on a number of factors, including the size and complexity of a company’s cash management system, the types of payments that it receives and makes, and the timing of incoming and outgoing funds. Strategies for minimizing the cost of float may include using electronic payment systems to reduce processing times, negotiating favorable payment terms with vendors and customers, and implementing effective cash management policies and procedures.