The following example should help you understand float. Float is the product of the check-clearing procedures of your bank and the Federal Reserve. In the past, it may have taken up to a week or more for checks to clear through the banking system. Today however, electronic processing and changes at the Federal Reserve have considerably reduced the amount of time it takes for checks to clear through the banking system. But even today, you can still expect it to take one to three days for a check to pass through the system.
Many businesses neglect to consider float when they find themselves temporarily short of cash.
You can actually use float to make payments with checks that create a negative balance in your checkbook register. For example, you may need to use float to take advantage of a supplier's trade discount, or to make other payments that need to be made immediately. Keep in mind that float is a two-way street, so to speak. If you write checks that clear your bank faster than your deposits clear, you'll create a negative float. The key to making float work in your favor is to accelerate your cash inflows and delay your cash outflows .