Float is the difference between the balance shown on the bank’s records and the balance shown on the business’s checkbook. This difference is the result of the lag between when checks are written and when checks are cashed in. For instance, if a firm writes a check, it shows as a deduction from the checkbook immediately, but will not actually be deducted from the bank for some amount of time, when the check is cashed. Firms can increase float by to speeding up the process of cashing incoming checks. This way they are able to put the funds to work quicker. Firms can also try to stretch out their own payments for as long as they possibly can. They should only try to do this ethically, though. Float is good for the cash management of a business because it essentially provides an interest free loan to the business. This way, the business can retain cash without having to raise funds in the marketplace or take out an interest bearing loan.
Student # 2
“Float” is essentially the difference shown in money balance between the company’s ledger and the actual bank balance. The time period it takes for a check to process, whether it is through the mail or through the bank system is what causes a float. Organizations generally like to speed up the process of receiving money through checks and slow down the process of sending out money through checks. Company’s use a system called lockbox which is efficiency by geographical area. If the company is located a big distance from the customer, they will have the customer send the check to a closer secured location. This then goes into the banking system at a faster pace and the company receives the statements almost immediately.

By accelerating cash inflow and controlling cash outflows companies can improve their business processes. A float is generally good when a company is trying to raise capital. Because all the balances have not been settled there is not definitive debt that can be identified. Therefore the floating debt or credit will show better when investors look at the company. Floating also gives lee-way to the company to make financial decisions.