Association for Financial Professionals (AFP) Practice Exam

What is the correct order of components in collection float?

1. Mail float, processing float, availability float

2. Mail float, availability float, clearing float

3. Availability float, processing float, mail float

4. Mail float, processing float, clearing float

The correct answer is: Mail float, processing float, availability float

The order of components in collection float is based on how money moves through the collection process. Understanding this order is crucial for managing cash flows effectively. Starting with mail float, this is the time it takes for the payment to be sent through the postal system from the payer to the payee. This initial step is influential because delays in the postal service can significantly affect cash availability. Next is processing float, which represents the time taken to process and record the payment once it has been received. This includes the time required for check verification and data entry into financial systems. Efficient processing is critical for reducing the overall float time and improving cash management. Finally, availability float refers to the time between when the payment is processed and when the funds are available for use. This can vary based on the collection method and banking processes involved. The sequence of mail float, processing float, and availability float accurately represents the journey of a payment from the moment it is mailed until it is available for use. Each stage impacts the timely access to funds, highlighting the importance of understanding and managing collection float in financial operations.