Availability float refers to the time difference between when a deposit is made to a bank account and when the funds become available for use. During this period, the money is in the banking system but not yet accessible by the account holder. Availability float occurs due to the time it takes for banks to process and clear checks or other transactions before the funds can be utilized.
For example, if a business deposits a check on Monday, and the bank makes the funds available on Wednesday, there is a two-day availability float. This float period can impact cash management and the timing of payments, especially for businesses that rely on a steady cash flow. It is essential for businesses to account for availability float when managing their finances to ensure that they have enough funds available to cover their expenses and avoid overdraft fees or other financial issues.
Example of Availability Float
Let’s consider a small business owner named Sarah. She receives a check for $5,000 from one of her clients on Monday and deposits it into her business bank account the same day. The bank, however, takes two business days to process and clear the check. This means that the $5,000 will not be available for Sarah to use until Wednesday.
During these two days (Monday and Tuesday), Sarah’s bank account has an availability float of $5,000. If she has bills or expenses to pay on Tuesday, she needs to ensure that her account has enough funds to cover them, excluding the $5,000 that is still being processed. If she fails to account for the availability float, she may overdraw her account, which could result in overdraft fees or other financial issues.
By understanding and considering the availability float, Sarah can better manage her cash flow and avoid potential financial problems. She may need to schedule payments around the expected availability of funds or maintain a buffer in her account to cover expenses during the float period.