Association for Financial Professionals (AFP) Practice Exam

From the perspective of the buyer/payor, what does payment float include?

1. Accounts payable and disbursement float

2. Collection float

3. Accounts receivable, mail delay, processing delay, and clearing delay

4. Invoicing float

The correct answer is: Accounts payable and disbursement float

Payment float, from the perspective of the buyer or payor, primarily consists of the time period between the initiation of a payment and the actual outflow of cash from the buyer’s account. This encompasses various types of delays, including accounts payable and disbursement float. Accounts payable refers to the money a company owes to its suppliers for goods or services purchased on credit. The disbursement float specifically relates to the time between when a payment is initiated (e.g., when a check is cut or an electronic payment is scheduled) and when it is actually processed and the funds are withdrawn from the company’s account. Understanding these aspects of payment float is crucial for companies looking to manage their cash flow and working capital efficiently. By controlling payment float, businesses can optimize their liquidity and make more informed financial decisions regarding when to pay their obligations, thereby enhancing cash flow management. The other options do not align with the context of payment float from the buyer's perspective, as they focus more on collection or receivables rather than the time duration associated with payments being made.