Float
Float is money that exists in two places at once during the settlement period. When a payment is initiated, the sender’s account may be debited while the recipient hasn't yet received the funds—this gap creates float. It's essentially a timing difference in the accounting books. It commonly arises in payment processing, card networks, and treasury operations. Managing float affects liquidity, cash flow timing, and overall financial risk.
Float vs. Funds in Flight
While these terms are related, they have distinct meanings:
- Float refers to the financial phenomenon and opportunity created by settlement delays. It's about the timing advantage and liquidity implications—who has access to the money during the waiting period.
- Funds in flight is a more operational term describing money that's literally moving through the payment system infrastructure. It focuses on the physical or electronic transfer process rather than the financial implications.
In brief, funds in flight describes where the money is, while float describes the financial opportunity created by the delay.
Why Float Matters
Organizations can optimize float to improve working capital. For example, companies may strategically time payments to maximize the period when funds remain in their control, earning interest or maintaining liquidity. Conversely, reducing collection float means getting paid faster, which improves cash position.