Logistics Glossary

Get to know the vital terms of Logistics and Supply Chain Management.

Float

What is Float in Business Transactions?

Float is the delay time between initiating a transaction and its completion, particularly with regard to the movement of documents, payments, or information between trading partners. In finance, it is relevant because float impacts cash flow, the outcome of financial planning, and availability of funds. The more time-consuming the float is, the longer it takes to clear or process a payment, and this has the possibility of having a big business implication.

Types of Float

Payment Float

Payment float occurs when issuance of a payment creates a delay between when it is issued and when it is received, or is otherwise made available to the creditor for access. As an example, when a firm issues a cheque, funds would likely not be withdrawn from that issuing firm’s account until the cheque is presented to, and cleared by, the payee. This is during the ‘float’ period in which the firm can continue to make use of those funds.

Document Float

This is the time taken to pass between parties of documents such as invoices, contracts, or other documents. Long document float could imply that business processes are delayed and thus may even compromise the ability to fulfill orders, payment cycles, or contract execution.

Information Float

Information float is a lag in the communication of data between business partners. It may be said that whenever there is a lag among order confirmations, inventory levels, or payment updates, it leads to inefficiencies or missed opportunities.

Cash Flow and Financial Planning Impact

Afloat can be quite radically affecting the management of the cash flow of a firm. When the payment float is too long, then there will be a delay in receiving the funds, hence, the business may not be in a better position to pay the suppliers, employees, or operational costs. This requires careful planning of the finances and float considering that the funds shall be available when needed.

Conclusion

Float can be such an important business transaction concept with regard to cash flow management and financial planning. In understanding and, thereby, managing float correctly, the company would optimize its operation in terms of finance while reducing delay and making it more efficient.

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