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To ensure that you can pay staff, suppliers, or other company partners on given schedule, having enough cash flow is crucial for many small business owners. Nevertheless, cash float means that the quantity of money in your accounts at any given time may not necessarily be a true indicator of the total amount that your company has.
We will go over all the details you require to comprehend cash float and how it functions in your company in this post, along with several useful versions of this technique.
What is meant by Cash Float?
The discrepancy between the amount of cash you actually have in your bank accounts and the cash balances indicated in your business accounting is known as cash float. Delays in money transfers or payments are typically the cause of this disparity, as is the processing of checks, which can take a bank several days to receive and record.
Cash float can also relate to the amount of money that employee puts in the register at the beginning of their shift or in the context of a retail store or restaurant. Typically, this is a little amount of cash, divided into several bills and change to enable clients to get their change. The cash drawer is intended to show both the overall sales for the shift and the entire cash float, even though the business has contributed this money.
The cash flow scenario is the same even though the specifics are different the amount of money in the business bank account is different from the amount that is recorded in your accounting. This is because the money is in motion because it is either being utilised by a cashier to make change, it hasn’t been received officially yet, or you’re waiting for the bank to deposit it.
Types of Cash Float
Check Processing Delays:
Check processing delays are a significant cause of cash float. In their accounting records, the money is shown as available when a customer makes a check. Nevertheless, it usually takes a few days for the checks to be deposited and removed from the payer’s bank account. The company can appear to have more cash on hand during this float phase.
Retail Register Cash Floats:
The quantity of actual cash held in registers to provide change for patrons is referred to as “cash float” in the retail and restaurant industries. Since the money is actually there and is designated for change-making rather than general spending, there isn’t really a difference here. The beginning amount is shown by the float, which does not take into consideration any cash from sales.
Customer Money Transfer Delays:
Businesses in the enterprise that manage client money transfers may potentially encounter cash float. Before being transferred to its ultimate destination, money received from clients may stay in the company’s intermediary accounts for a few days. Before being disbursed, the money is shown as assets on the business’s books for that brief duration.
Which Factors Influence Cash Float?
Check Processing Delays:
Checks are processed in batches by banks at predetermined intervals, which causes backlogs during weekends and holidays. Additionally, more checks are processed early in the week particularly on Tuesdays. Furthermore, during the busiest Christmas season in December, there is a notable surge in the quantity of checks.
Transportation Issues:
The actual movement of checks from one place to another and mail delivery can both be seriously hampered by winter weather. The delays in other processing are made worse by this transit float.
Managing Cash Float
Precise Cash Flow Tracking:
Maintaining accurate accounting records by meticulously recording each incoming and outgoing cash transaction and recording any changes that happen. Discrepancies may result in overdrafts or other cash flow problems if they are not properly tracked.
Reconciliation Calculations:
Businesses should compute the current cash float and factor it into projections when reconciling accounting records. Float = Total Bank Balances – Cash Balance in Books is the formula. This indicates future liabilities.
Monitor Payables/Receivables:
Businesses can determine which debts are still unpaid or pending by keeping an eye on their accounts payable and accounts receivable. By knowing this, possible discrepancies between bank balances and accounting records can be avoided.
Ways to include cash float into your bookkeeping
Identifying internal processes to avoid misunderstanding and errors is made possible by the knowledge that cash float will be present in your firm.
Making sure your company has a very clear process in place for recording cash flow is, without a doubt, the best way to reduce cash float. This calls for meticulously monitoring the sending, receiving, and depositing of checks and payments and recording every action. Preventing overdrafts on accounts that may be debited shortly or from other accounting irregularities can be achieved by maintaining a meticulous paper trail.
By including cash float in your book reconciliation, you can easily make sure that you are accounting for it. To find your present cash float, use this formula:
Float = business’s available account balance – business’s book balance
Gaining control over your payables and receivables can be achieved by closely monitoring your cash float. You can use it to find the checks you haven’t yet cleared and to fix any accounting issues that might arise with your bookkeeping.
Conclusion:
Accounting inconsistencies are the worst fear of any company owner. However, cash flow is a typical aspect of the financial lifecycle of any sound company. You’ll be well on your way to handling the finances of your company like an expert if you only make sure to account for it in your bookkeeping procedures.
Disclaimer: Kindly note this blog provides general information and should not be considered financial advice. We recommend consulting a qualified financial advisor for personalised guidance. We are not responsible for any actions taken based on this content.
