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CA Intermediate · Financial Management and Strategic Management · Treasury and Cash Management

A company's payments to suppliers are made through a bank on cheque issue, but the cheques take 4 days to be cleared after issue. The practice of benefiting from this delay in cash management is known as:

This practice is called playing the float. The firm exploits the gap between issuing cheques and the bank actually debiting its account, so it can hold lower cash balances. Concentration banking and lock-box systems accelerate collections instead.

  1. AConcentration banking
  2. BPlaying the floatCorrect
  3. CLock-box system
  4. DNetting

Explanation

Playing the float means using the time gap between issuing a cheque and its debit to the account, keeping lower balances in the meantime. Concentration banking and lock-box speed up collections, while netting reduces intercompany settlements.

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