Disbursement Float
Disbursement Float is the time taken from payment creation to settlement. Collection float is the sum total of time taken by Payment Float; Mail Float; Processing Float and Availability Float. Learn more!
Disbursement Float is the time it takes a company's payment to be created, mailed, received, deposited and presented to the drawee bank for settlement.
Thus collection float and disbursement float refer to the same processes and time intervals depending on point of view; one as a customer and another as a supplier.
For the company receiving a payment, collection float represents the time it takes an invoice to be prepared, to reach the customer, to receive payment and for the payment to clear the bank.
For the company making the payment, that same interval is disbursement float.Disbursement float consists of the following four components:
1. Invoicing and payment processing float includes both the time it takes the supplier to prepare and send the invoice, as well as the time the accounts payable department requires to process the invoice and create the payment.
2. Mail float is the time taken by postal or courier service to deliver the payment to the vendor.
3. Processing float is the time it takes the vendor to record the payment and deposit it into the bank.
4. Availability float is the time it takes the bank to clear the check and deduct the funds from the payee's bank balance.
Cash management focuses on shortening collection float and extending disbursement float, without impacting the positive customer and vendor relationships.
The skillful management of float contributes real bottom-line impact and benefit to the company.
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