A check drawn on a bank outside the area of the local clearinghouse generally involves the use of the Fed's clearing facilities. Float refers to checks in the process of clearing. When the payee deposits the check in his bank, he receives credit the same day for that amount. Until the check is processed through the clearing system, the payer continues to receive credit on his account. Thus float represents an interest-free short term loan to the payer.
Credit cards offer a substantially longer float period.
The problem of bad checks is avoided by the giro payment method of transferring ownership of bank deposits. With a check, the payer gives the payment order to the payee. The payee must present the check to either the payer's bank for cash or to his own bank for deposit which will then initiate the clearing process. With a giro payment, the payer hands the payment order directly to his own bank, which then makes payment to the recipients bank. After the payment has been received, the payee is notified by his bank.