What is Availability Float?

Availability float is the time between when a check is deposited and when the funds are available to the recipient. The cause of the delay is the time required for the issuing bank to honor the check and transfer funds to the receiving bank. In effect, it is a processing delay. The availability float works in favor of the payer, which retains use of its funds during the float period. This float works against the interests of the payee, which will not have use of the funds until the funds are made available to it by the bank.

How to Reduce Availability Float

There are several ways to reduce availability float. These methods aim to expedite the processing of checks and the clearing of funds. Here are the key approaches:

Electronic check conversion. Convert paper checks into electronic transactions at the point of deposit. This method, often used in retail and banking, significantly speeds up processing.
Remote deposit capture. Deposit checks digitally via mobile or desktop scanners, bypassing the need for physical transportation to the bank. This reduces the delay in depositing checks.
Same-day check clearing. Leverage same-day clearing services, such as those offered by clearinghouses or financial institutions, to process checks more quickly.
Optimize deposit timing. Deposit checks as early as possible in the banking day to ensure they are processed within the same day's clearing cycle.
Implement lockbox services. Use lockbox services provided by banks to have checks sent directly to a secure bank-managed location for immediate processing.
Encourage electronic payments. Encourage the use of electronic funds transfers or other digital payment methods instead of checks to eliminate float entirely.
Utilize faster clearing systems. Use services like the Federal Reserve’s Check 21 Act systems or private clearinghouses that offer faster clearing options.
Negotiate with your bank. Negotiate with your bank to reduce the hold time on deposited checks, especially for high-volume or business accounts.

By adopting these methods, businesses and individuals can reduce the time funds are held as availability float, improving cash flow and financial efficiency.

Example of Availability Float

As an example of availability float, a business currently has a balance in its bank account of $42,000. The entity receives a check for $3,000 from a customer, deposits the check, and records the cash receipt in its own records, resulting in a cash balance of $45,000. The bank's records will still show a $42,000 balance for several more days, until the check clears. This $3,000 difference is the availability float.