Increasing Disbursement Float

As we have seen, slowing down payments comes from the time involved in mail delivery, check processing, and collection of funds. Disbursement float can be increased by writing a check on a geographically distant bank. For example, a New York supplier might be paid with checks drawn on a Los Angeles bank. This will increase the time required for the checks to clear through the banking system. Mailing checks from remote post offices is another way firms slow down disbursement.

Tactics for maximizing disbursement float are debatable on both ethical and economic grounds. First, as we discuss in some detail in the next chapter, payment terms very frequently offer a substantial discount for early payment. The discount is usually much larger than any possible savings from "playing the float game." In such cases, increasing mailing time will be of no benefit if the recipient dates payments based on the date received (as is common) as opposed to the postmark date.

Beyond this, suppliers are not likely to be fooled by attempts to slow down disbursements. The negative consequences of poor relations with suppliers can be costly. In broader terms, intentionally delaying payments by taking advantage of mailing times or unsophisticated suppliers may amount to avoiding paying bills when they are due, an unethical business procedure.

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