Row, Row, Row Your Float
Float is duplicate money present in the banking system during the time between a deposit being made in the recipient's account and the money being deducted from the sender's account.
This float allows you to earn interest of the money before you have to use the capital resource to fulfill your contractual obligations.
There are several ways you can earn income from the float generated from normal business activity.
- Pay an invoice on a Friday. A vendor has to give credit to your account the day they accept your payment but can’t cash it they deposit it into their bank account. Also the money is not taken from your account until the check is cleared. Pay an invoice on Friday will increase the float by at least one day but often two days if made in the afternoon. Many times the vendor will not even deposit the funds into their bank account until Monday afternoon giving you an extra day of float.
- Take advantage of “Bank” holidays. Many bank holidays are on a Monday so this holiday will give you an extra day of float. Thanksgiving will give you four days of float.
- Negotiate: you can negotiate your float by extending terms with your vendors. At the beginning of a business relationship you can ask your vendor to give you 60 or 90 terms with no interest penalty to pay invoices. Of course, your vendor will frown on this but if they really want your business they will comply.
- Gift Cards are an excellent way to accumulate float. This is great for retail businesses. Not only is there usually a great expanse of time between the purchase and redemption of a gift card but an estimated 10% of gift cards are never redeemed before the expiration period.
- Corporate Bonds - In this model, a company sells bonds to investors with the guarantee that it will buy them back for a fixed price after a certain period has elapsed. Basically this buy back price is driven by payment from future sales. So your company can get money now from future sales.