National Check Professional (NCP) Certification Practice Test

What does negative float indicate?

1. Bank float greater than customer float

2. Customer float greater than bank float

3. Equal customer and bank float

4. High transaction volumes

The correct answer is: Customer float greater than bank float

Negative float indicates that the customer float is greater than the bank float. This situation arises when there is a delay in the bank processing checks compared to when the customer has recorded the transaction. Essentially, negative float suggests that the customer's checks are presented for payment or clearing to the bank faster than the bank can process those transactions. Understanding this concept is crucial because it highlights a scenario where the customer may have more outstanding checks (money that has not yet been deducted from their account) than the bank has in terms of funds available from checks that have already cleared. As a result, negative float can signify that the funds represent a liability for the bank, as the checks drawn on the bank are effectively creating a situation where the bank owes funds to customers without having been able to offset that against incoming deposits from other accounts. In a broader financial context, negative float can also be indicative of cash management issues or cash flow discrepancies. It represents a point of concern for both customers and banks, as maintaining proper float management is essential for financial stability.