National Check Professional (NCP) Certification Practice Test

What is a description of negative float?

1. When bank float is greater than customer float

2. When customer float exceeds bank float

3. When there are no available funds

4. When checks are returned unpaid

The correct answer is: When customer float exceeds bank float

Negative float occurs when customer float exceeds bank float. To understand this, it's important to recognize that customer float represents the amount of time checks are in the mail or waiting to be deposited, while bank float refers to the funds that are still being processed or are not yet available in the bank account. When customer float is greater than bank float, it means that checks are being accounted for on the customer’s books but have not yet cleared the bank, resulting in a situation where available funds are less than what is reflected in the customer’s records. This can lead to overdraft situations or the perception that more funds are available than are actually accessible, thus creating negative float. In scenarios where this occurs, effective cash flow management becomes crucial as it highlights potential liquidity issues for the business or individual when funds may not be where they are expected to be.