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Managing float in the collection process

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Explain in detail how the four kinds of float (billing, collections, transit and disbursement) can be used to maximize the efficiency of incoming revenues and outgoing expenditures? What kinds of policies can be initiated to facilitate maximum efficiency and why?

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Solution Summary

The impact of float on the operations of a business from payer and payee points of view.

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First let's insure we understand the various types of floats listed above. Billing float presumes an invoice being sent for services and/or products rendered. As such, there is the time needed to research and prepare the invoice, the time to mail it, and the time for it to be received and processed at the distant end - probably a good estimate of time involved at both ends is 5-8 days.

Collections involves the time it takes for the money to be received and deposited for use. This involves actual payment of the invoice, the time to receive the payment, and the time it takes to deposit the funds in the bank (including bank processing time). This can take - 5 - 20 days or more depending upon the payment cycle of the invoicee.

Transit involves the time in process for processing, transporting invoicing, payments, and the like - using the normal post office can result in 2-3 days each way, plus processing time at both ends. Total time can be 7-10 days or more.

Disbursement involves both the payment of the billing invoice as well as the availability of funding via the bank after deposit. On the payment side, it can last up to 30 days (the normal amount of credit offered by most companies, plus the processing time by the bank which can add a few more days).

Needless to say, float is an item which allows payments to be delayed, and which are normally ...

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