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Course: Finc 103
Financial management

Questions
State four strategies for speeding up cash collections
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Define float and describe the three forms of float
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Four strategies for speeding up cash collections
The objective for managing accounts receivable is to obtain the collection of
cash receivable quickly through
 Credit selection and standards,
 Credit terms, and
 Credit monitoring
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Offering Credit: providing customers a period before full payment is due
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The company can impose an interest penalty for late payment example
if payment is made later than the 30 days time period customers will have to
pay an additional five (5) percent on the cost price
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3) Credit Monitoring
The monitoring of aging Accounts Receivable by tracking of age of payments
through the use of popular Collection Techniques via Letters, telephone calls,
Personal visits, Collection agencies or legal action
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Establish timing for issuing
letters of demand and the point when further payment should be made
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4) Increase payment channels through technology
This can be done through the following

Lockbox System: a collection procedure where customers mail payments to a
post office box that is emptied regularly by the firm’s bank, which processes
the payments and deposits them in the firm’s account for example the company
rents a locked post office box in each principal region
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The local
bank, as agent for the company, empties the box at regular intervals and
deposits the checks in the company's local account
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Deposit reports can be delivered via
transmission, fax or mail
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Where daily deposit reports can
be delivered via transmission, diskette or mail
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Increased payment channels through technology
Technology provides you with the tools to speed up collections processes by
utilizing electronic fund for transfer s or services e
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telebanking, internet
banking payments, credit / debit cards payment centers or Electronic Payment
Services (EPS) and e-commerce or related service centers for example
someone can pay bill through the online agencies
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The first factor is character, which refers to a borrower's
reputation
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The lender will consider any capital
the borrower puts toward a potential investment, because a large contribution
by the borrower will lessen the chance of default
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Finally, the conditions of the loan, such
as the interest rate and amount of principal, will influence the lender's desire to
finance the borrower
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The credit report contains a financial picture of
how past and current credit obligations are being met
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Capital - The applicant’s total assets and net worth (value of common equity)
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A determination is made of
how much, if any, leverage is currently on the equity and leads to a debt-toworth
Ratio calculation
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Collateral - The amount of assets the applicant has available for use in
securing the credit
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Collateral also refers to assets used to
secure credit,
Such as real estate, receivables, inventory or equipment
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Conditions - Current general economic conditions (specific to analysis or
industry specific) Conditions refer to any unique market forces that may be

affecting the business, and the quality of the business’ financial statements
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Float and its forms
What is a Float?
The total number of shares or shares of a security publicly owned and available
for trading
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It other words a float is the difference between bank cash
and book cash
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Positive float means the firm’s bank cash is greater than
its book cash until the check’s presentation
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Checks written by the firm represent collection float, which increases book
cash immediately but does not immediately change bank cash
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For example, a company may have 10 million outstanding shares, but only 7
million are trading on the stock market
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Stocks
with small floats, fewer than 3 million shares, tend to be a lot more volatile
than others
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In other words the time that elapses
between receipt of payment from a customer and the deposit of the customer's checks
in the firm’s bank account; the time required to process customer payments

Clearing Float or collection float: Times between deposits of payment are
made into an account and when spendable funds become available
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A zero balance account is used by corporations to
eliminate excess balances in separate accounts and maintain greater control over
disbursements
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Firm deposits money to cover cheques drawn on the account only as they are
presented for payment each day
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In a zero-balance
collection account, collected balances are transferred by Depository Transfer
Check or automated clearing house debit from subsidiary accounts into a
central Concentration Account bringing the collecting account to a zero balance
at the end of each business day
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In a
zero-balance disbursing account, corporate funds are transferred out of a central
account to subsidiary accounts for payment to trading partners
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Zero-balance disbursement accounts are
typically used by companies that want centralized cash control but
decentralized funds disbursement
A zero balance account is used by corporations to eliminate excess balances in
separate accounts and maintain greater control over disbursements
A zero balance account is a financial mechanism that is utilized to make
payments, but does not maintain any type of running balance
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Generally, the funding for a zero balance account is obtained
from another financial account under the control of the business
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One
of the most common advantages of maintaining a balance of zero in the
checking account is that the resources of the business or organization can be
housed in other financial accounts that are interest bearing
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As a result, the
company may achieve a significant amount of interest income over the course
of the calendar year
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In an age where debit
cards are often tied to checking accounts, a zero balance approach helps to
ensure that any use of debit cards is done only with authorization ahead of
time, and when funds are available to be transferred into the account to cover
the usage
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The zero balance account, or ZBA, is a great tool for managing resources when
the amount of income is running close to the amount of debt that needs to be
discharged in the short term
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This ensures that funds can be transferred real time or at least on the same
business day
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