Float is an incredibly important concept to understand in financial transactions, as it represents an often overlooked but powerful resource for individuals, businesses and organizations.

Float is essentially an asset that is double-counted: after money is paid, it appears simultaneously in the accounts of both the payer and the payee. The reason this happens is often due to delays in processing and reconciling payments, which causes a gap between when money is transferred and when it is cleared. This gap between payment being received and when it is actually cleared by a financial institution is known as “float”.

Float can be used to a company’s advantage in a number of ways. For example, let’s say an individual pays for a service with a check; when the seller receives the check, it has only been “tendered” or “presented” as payment – meaning it hasn’t yet been cleared and the money hasn’t been deposited into the seller’s account. In the meantime, the seller can use that money to make other purchases, giving them a short-term boost to the company’s cash flow.

Additionally, businesses can earn interest on float if there is a delay in the time between when the payment is received and when it is cleared. Over the years, some companies have looked to increase the amount of float they have, by passing off the costs of running their financial systems to their customers. For example, some businesses may require customers to pay with a check and will not accept other forms of payment such as a credit card.

However, it’s important to remember that playing with float can become problematic if it involves the use of other peoples’ funds. If the money is not cleared, it does not legally belong to the company and it can be considered wire fraud or mail fraud. In addition, if a company significantly stretches out the amount of time it takes to clear certain payments, customers can be put in a difficult financial situation, as they need to pay for the services or goods being provided, but the money does not actually belong to them yet.

Float can provide businesses with a great advantage if it is used properly, but it is important to understand the legal implications that come with the double-counting of funds. The more time it takes for a payment to clear, the more of a risk it poses, so companies need to be aware of their customers’ financial needs and make sure they are not taking advantage of them. If managed carefully, float can be an incredibly helpful tool for managing finances.