Business, Legal & Accounting Glossary
This refers to the data at which a remittance sent through a bank clearing cycle becomes available for the payee’s use.
A term whose meaning depends on the context in which it is used. It can refer to the date when the price of an item whose market value fluctuates is set; it can be used in this sense for currency and derivatives contracts. Or it can refer to the date in a company’s accounts when an entry or item takes effect; when funds are paid, received or used, for example. Or it can be used in banking to refer to the date when interest payments are credited or debited to or from an account or when funds that have been deposited can be used. It can also refer to the date on which parties to a trade settle their obligations and make delivery and payment; in a spot currency transaction, it is two business days after the trade was made, for forward transactions it is the future date. Finally, it can also refer to the date a transaction takes place.
effective date, for value, entered into force, enters into force, expiry date
When a bank receives a deposit of checks from a payee, the funds represented by the checks are credited to the payee’s account. However, the bank has not yet received the cash because it must still collect funds from the paying party’s bank. If the payee uses the cash it has just received, the bank risks having a negative cash flow situation until the funds are collected.
To mitigate this risk, the bank posts the deposit amount with a value date one or more days later than the book date. This value date is the assumed date of the bank’s receipt of the cash. The payee has access to the funds once the value date is reached. The bank may classify the value date as 1-day float, 2+-day float, or another term. A larger bank customer may be able to negotiate the time period prior to the value date.
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This glossary post was last updated: 13th April, 2022 | 0 Views.