1 min read
Float is money or assets that have been temporarily double-counted due to delays in settlement processing. Therefore, the money appears simultaneously in the accounts of the payer and the payee. Individuals and companies can benefit from using float.
Time gaps that cause float to occur are usually due to the delay in processing paper checks. When a bank credits a customer’s account as soon as a check is deposited, the funds often have not been received yet from the payer’s bank and recorded. Until the check clears the payer’s account, the funds “exist” in two different places, appearing in the accounts of both the recipient’s and payer’s banks.
There are two types of float: holdover float is due to a delay by the transaction processor, usually a bank processing delay because of the weekend, holidays, or high-traffic seasonal delays. Transportation float occurs when weather or air traffic delays fund processing or physical movement.
Float is calculated as the firm’s available balance minus firm’s book balance. Float represents the net effect of checks on the process of clearing. Individuals and companies can take advantage of float to gain time or earn interest before payments clear, but float can wire fraud or mail fraud if it involves the use of others’ funds.