What it means
Payment float exists because money does not move instantly. A cheque takes days to clear; a batch bank transfer may be initiated on Monday and credited on Wednesday; card payments are collected by a processor and settled to the merchant in one to three days, net of fees; direct debits are collected on a schedule.
During the lag, the payer's ledger shows the money gone while the bank shows it still there (disbursement float), or the recipient's ledger shows it received while the bank has not yet credited it (collection float). Both are reconciling items in the bank reconciliation, and both must be forecast: a company that expects $500,000 of card takings on Saturday should not plan to pay a supplier from it on Monday if settlement is on Wednesday.
Historically, float was a source of value. A company that paid by cheque from a distant bank and collected through a nearby one could hold onto cash for days at each end, and banks earned interest on money in transit.
Faster payment systems, same-day clearing and instant transfers have compressed float to hours or minutes in many countries, and the deliberate exploitation of clearing delays (playing the float, or at the extreme cheque kiting, which is fraud) has largely disappeared. What remains is the operational lag in card settlement, international transfers and batch payments, which cash forecasting must still allow for.
The retail float is a control. At the start of a shift a till is loaded with a known amount, say $200 in mixed notes and coins, recorded on a float sheet.
At the end, the till is counted: the count should equal the float plus recorded sales (cash sales and any cash paid out with a slip). The difference, if any, is the till variance, investigated if it exceeds a tolerance.
The float is then restored to its fixed amount for the next shift and the takings banked. Petty cash works the same way under the imprest system: a fixed float is topped up periodically by exactly the amount of the receipted payments made from it, so that cash plus receipts always equals the float.
Both meanings share the idea of money that is somewhere between two places: in the pipeline between payer and payee, or in the till between the safe and the bank. In both cases the control is to know exactly how much should be there and to check regularly that it is.
For finance teams, the practical tasks are: to model settlement lags in the cash forecast (card processors, marketplaces and payment platforms all have published settlement cycles); to treat unsettled card takings as a receivable from the processor rather than as cash; to keep floats at the minimum that operations require, since cash in tills earns nothing and can be stolen; and to reconcile floats and settlements daily in any business with significant cash or card volume.
In practice
Real-world examples.
Example
A marketplace seller sees sales recorded on Monday and the platform's payout on the following Friday, and forecasts cash on the payout dates, not the sale dates.
Example
A company sends a batch of supplier payments on Thursday afternoon that leave the account on Friday, so its Thursday bank balance overstates available cash by $400,000.
Example
A supermarket runs 40 tills with $250 floats each, counted at every shift change, with variances over $15 investigated the same day.
Think of it
“Cash float is the time money spends in transit-between being sent and being available for use.
Formula
Calculation
Collection Float (days) = Days from customer payment initiation to funds available in the business's account
Disbursement Float (days) = Days from payment initiation to funds leaving the business's account
Cash in transit = Daily receipts x Collection float days
Till check: Opening float + Recorded cash sales minus Cash paid out = Expected closing cash; Variance = Counted cash minus Expected
Worked example, settlement float. A restaurant group takes $180,000 a day across 30 sites: 85% by card, 15% in cash. Its card processor settles two business days after the transaction, net of 1.6% fees. Cash is banked the following day.
- Card takings per day = $153,000; settlement float 2 business days; card takings in transit on any weekday = $306,000 (and over a weekend, Friday to Sunday takings, about $460,000, are not received until Tuesday and Wednesday)
- Cash takings per day = $27,000; banked next day: $27,000 in transit
- Total cash in transit on a typical weekday = about $333,000, which the cash forecast must treat as a receivable, not cash
The group's finance team had been paying suppliers on Mondays on the assumption that the weekend's takings were available; twice in a year the account went into unarranged overdraft at a cost of $1,200 each time in fees and interest. Moving the supplier payment run to Wednesday, after the weekend settlements arrive, resolved it. Negotiating next-day settlement with the processor for an additional 0.1% fee would cost $55,000 a year and release $153,000 permanently; at an 8% cost of funds that is worth only $12,000, so the group keeps the two-day cycle and plans around it.
Worked example, till float. A shop's till starts the day with a $150 float. The point-of-sale system records cash sales of $1,284 and one cash payout of $35 for a window cleaner (with a slip). Expected closing cash = $150 + $1,284 minus $35 = $1,399. The count is $1,391. Variance: minus $8, within the $10 tolerance, recorded on the float sheet and signed by the shift supervisor. $1,241 is banked (the count less the $150 float restored for tomorrow); the $8 shortage is posted to a till differences account, which is reviewed monthly by site and cashier. Over the month, one cashier's till shows shortages totalling $140 against an average of $12 for others, which triggers a review.Case study
Seen in the real world.
A chain of coffee shops with 55 sites had cash floats set by each manager, ranging from $100 to $600, and petty cash boxes topped up by drawing on takings without records. Cash counts were done when convenient. An area manager noticed that one site's banking was consistently lower than its recorded sales, and a review found that floats across the chain totalled $19,000 against an operational need of about $8,000, that petty cash across the sites was unaccounted for to the tune of $6,000 a month, and that three sites had takings shortfalls that added up to $23,000 over a year.
The finance manager standardised the float at $150 per till, introduced a float sheet signed at every shift change with the count and variance, moved petty cash to the imprest system with a $100 float per site topped up only against receipts, and set up a daily report comparing recorded sales, counted cash and banked cash by site, with variances over $20 escalated to the area manager the same day. Floats fell by $11,000, which was banked; petty cash spending fell by 60% once it had to be receipted; and the three sites' shortfalls stopped within a month, one after a dismissal. The finance manager's summary was that cash that nobody counts belongs to whoever picks it up.
Watch out
Common mistakes.
- Treating card takings as cash on the day of sale. They are a receivable from the processor until settled, and the cash forecast must use the settlement date.
- Letting till and petty cash floats vary by site or shift without a fixed amount and a signed count, which makes shortages invisible.
- Forgetting disbursement float in the other direction: a payment batch sent late in the day may not leave until the next day, so the closing bank balance overstates what is really available.
Questions
People also ask.
What is the difference between collection float and disbursement float?
Collection float is the delay between a customer paying and the funds being available to the business. Disbursement float is the delay between the business initiating a payment and the funds leaving its account.
Is it acceptable to take advantage of float?
Planning around known settlement cycles is normal. Deliberately writing cheques against funds that are not there, or cycling cheques between accounts to create artificial balances, is cheque kiting and is fraud.
How large should a till float be?
The minimum needed to give change for a shift, typically $100 to $300 depending on the business, fixed for all tills and restored to the same amount at every count.
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